Student Credit Card and Credit Education Blog

Kathy writes:

My 19 yr old college soph. has NO interest in owning/using a credit card but I believe he should have one in order to establish credit so that when he graduates he will have an easier time of renting an apt./purchasing a car/setting up utilities. Currently his only debt is subsidized Stafford loan. Am I correct or should he remain without a credit card? Thanks.

A very good question. To establish a basic record of credit, a student loan is a good start, but to get the maximum benefit for building a high credit score, the FICO algorithm tends to like to see about 2 trade lines. Here’s a quick glance at a FICO formula scorecard presented by Fair Isaac to the Federal Trade Commission. It’s not the exact formula, but it gives you a good idea of what credit scores look for:

Take a look especially at strongly positive and negative numbers in the chart. Owning your home is a great score booster – logically, of course, it’s because there’s something for a creditor to seize if you default on a loan. In occupation, the higher your likely pay scale, the more impact. The longer you’re employed, the better.

Number of inquiries is attention-getting – once you get turned down more than twice, at least according to this scoring model, it rapidly begins to negatively affect your credit score. Once you exceed 30% of your credit line utilization – for example, you owe more than $300 on a credit card with a maximum limit of $1,000 – your score declines quickly.

Does this answer whether your son should get a credit card? The answer is tentatively yes if he only has the Stafford loan – look at the line titled # Rev trades outstanding – this is number of trade lines. Having 1 or 2 trade lines is a good thing. Having a credit card grants 16 points to the score on the line titled Dept St/Major CC.

I’d recommend the following based on this credit guide – which admittedly isn’t the exact formula of today’s credit score, but is close:

1. If your son can rent off campus with you as a cosigner or guarantor, that might not be a bad idea.

2. If he can work, even a little, that’s a good thing.

3. If he does get a credit card, take a look at our StudentPlatinum.com credit card guides for student credit cards to find a card that fits his needs. You might be asked to co-sign on it or provide some debt guarantee, and that’s not a bad thing.

4. If he does get a credit card, make sure he keeps credit line utilization under 15% of the maximum limit – no more than $150 balance on a $1,000 card, for example.

5. He absolutely should have a checking account and a savings account set up at a bank or credit union.

6. Don’t apply for more than a couple of credit cards – multiple inquiries can significantly damage a credit score.

7. Above all else, if he does get a credit cards, never, ever be late with payments. Ever. Be early or on time, always make at least the minimum payment, and strive to not carry any balance at all.

Getting started with a student credit card as a sophomore is also not a bad idea as long as he maintains a solid payment history, as the bonus for years on file goes up significantly around year 3 – once he graduates, having that trade line active and in good standing will be very helpful to him.

Originally posted from the Financial Aid Podcast.

Is plastic bad? I guess it depends who you ask.

The pride of Mattel, Barbie, who turned 50 on Monday, would say “absolutely not” while flashing her perfectly plastic smile. But if you pose that same question to CEO’s of major banks in the U.S. they’d probably concede that credit cards are a double edged sword.

It’s important for banks to offer a complete portfolio of products to borrowers if they wish to be a retail bank of choice. Among those key products are CD’s, debit cards, home equity loans, and the much maligned plastic. The problem with credit cards, however, is that the number of defaults is now on the rise, which is compounding the issue for those banks trying to rebound from the sub-prime mortgage crisis.

As a result banks are doing what they can to insulate themselves from further losses; including lowering credit limits for some cardholders, closing accounts, or getting out of the business altogether.

Earlier this week Warren Buffet said the economy had “fallen off a cliff,” but unlike Thelma and Louise we will survive. The economy will come back, it always does, but it will take time. Some economists are suggesting it will take five years before the economy is strong again.

So if you notice less card offers in your mailbox or inbox these days you now know why. However, card offers for students do still exist if you know where to look. Let’s take a look at a few cards still on the market for students today.

What Can I Do?

Move quickly if you are interested in a credit card. Time is of the essence for the reasons cited above. There is no time like the present to begin building your credit. I began building credit when I was 19, and it helped me later in life when I bought a townhouse at the age of 26. The Truth About Life After College is a great read about building your credit early.

You also want to be very careful about your credit score. Protect it and coddle it like a new born baby. It’s kinda sad that your FICO score is that critical in life, but it really is. If you don’t know your score you should get a free credit report and familiarize yourself with it. How can you improve your credit score is an article that provides some helpful tips for strengthening your credit score.

Like the polar bears, credit cards for students are on the endangered list, but are still here for now. Perhaps you can grab one before the best offers are off the table. Then perhaps you’ll be wearing a smile as bright as Barbie.

ScholarshipPoints.com members can try to win free scholarships with the following code for 10 points: CARDTROUBLE.

A lot of students find themselves in debt early into college, and often worse after graduation.  It may be with credit cards, bills at your first off-campus apartment, or car payments – we have all experienced it.  If your one of the lucky one that hasn’t, believe me, you will.  The trick is managing your finances, creating a budget, and CONTROLLING your debts.  That is the key to success, and the key to living a debt free life.

Here is a small list of services that you may find useful to get yourself out of the hole, and get your finances back in order:

1.  Free PDF – Credit Card Debt Reduction Plan

A free guide for students including tips and tricks on managing debt, and budgeting money.

Download Free eBook!

2. Free Debt Consultation

Reduce your non student loan debt by up to 50%.  This includes credit card debt, phone bills, personal loans, etc. Be debt free in as little as 12- 48 months!

Get a Free Debt Consultation!

There you have it.  Two valuable resources to getting yourself back on track.  Your young, you have time to get your finances in order.  But you need to start NOW.  You’ll be thanking yourself it in the future.

Got a unique situation of your own and not sure what to do about it?  Ask our experts in the StudentPlatinum forum!

ScholarshipPoints.com members : Here’s your code to help you win free scholarships! NOMOREDEBT