Mark Hoofnagle has a MD and PhD in physiology from the University of Virginia, and is now a general surgery resident. His interest in denialism concerns the use of denialist tactics to confuse public understanding of scientific knowledge.
The new students have arrived at UC-Berkeley, closely pursued by hordes of credit card marketers. Right by my office is a bank that literally has 12 employees out front hawking credit cards and new accounts.
Freshman friends, don't get your first credit card from the guy on the street offering you a t-shirt or worthless, plastic (likely lead filled) bauble. Be smart about credit. Credit is an incredibly powerful consumer tool, but you must wield it carefully. If you ruin your credit, you will have difficulty in life getting a job (people with bad credit look like embezzlement risks to employers), starting basic utilities (like cable TV), and buying a home. You are not the federal government. You must live within your means. And yes, deficits DO matter!
The most heavily marketed and easiest credit products to adopt are often the worse for you. These are cards with high interest rates and fees packed "to the back" of the card, meaning that the fees are hidden. So, they may have no "annual fee" but if you decide to pay by phone, or if you're a millisecond late in your payment, expect outrageous penalties.
Remember that the credit cards with your college logo are "affinity cards." Your college gets a cut from those cards, and unfortunately, this profit motive causes many schools to market less than advantageous cards to their own students.
If you're going to get a credit card (and you should in order to start building your credit file), educate yourself and shop around. First, you should understand the concept of compound interest. Second, you should understand that if you only make minimum payments, you are at risk of being in debt nearly forever. Bankrate.com has a calculator that will help you understand that minimum payments equals maximum indebtedness.
One of the best guides to acquiring a good credit card is Bankrate.com's Credit Card Search. Another incredible resource is Consumer Action's Annual Credit Card Survey. Good luck, and don't allow the miracle of instant credit to bankrupt you!
Comments
And this is good advice for anyone with a card, not just students:
If you bank online (which you should by now!) have TWO payments sent, one every two weeks, for the minimum amount. This guarantees you are never late, and that you'll always be paying more than the minimum.
(This is only if you buy something big, like books, that you can't pay off in one month. And though it's a nice fantasy that we all pay off our balances every month, those 2-3 times a year giant expenditures like books and xmas gifts can take a while to whittle down.)
Posted by: yttrai | August 27, 2008 9:34 AM
I got my first credit card from the bank I was already using. It was a student card, for people with no credit, but they gave me a reasonable interest rate and minimal fees. The bank was willing to do this because I had a low limit ($500) so I couldn't get into too much trouble. I wish I had known that, when they raised my limit, I could have called them and asked for it to be lowered again.
Posted by: Natalie | August 27, 2008 9:41 AM
Also job when you can. First years are usually pretty easy to juggle and you will need the money later.
Posted by: Richard Eis | August 27, 2008 11:06 AM
When I was in first year, I used to get bothered by those guys a lot. I'd tell them, "If you want me to sign up for a credit card, you'll have to give me a job first so I can make the payments." That usually shut them up really quickly.
Then again, I got my first credit card (through my bank with a $500 limit) at the age of thirty, finally bowing to the pressures of modern society. For a while, I was doing really well -- no credit card, no driver's license, no passport; I was practically an unperson!
Posted by: Interrobang | August 27, 2008 11:47 AM
We got a secured card for our first and that worked out really well. Basically, we open a savings account with the bank and put $500 in. We then get a credit card with a $500 limit. In all other ways, it's just like an ordinary credit card. The only difference is that if we can't afford to pay it off, we can always borrow the money from someone, pay it, close the account, get our $500 back, and use that to pay back the person we borrowed from - instantly. Not to mention that the $500 accumulates interest.
Getting this card actually saved us when my husband lost his job. We didn't have enough to both pay bills AND eat, so we just canceled our credit card and got $500 we had counted as an "expenditure," so it felt like income. It helped us ride through that down period.
Posted by: Grimalkin | August 27, 2008 11:48 AM
My first card was through my school's credit union. It was a pretty sweet deal: although it had an extremely low limit (around $200 for frosh), it was unsecured, and you didn't need a credit history to open it. That meant when I graduated and started getting income, I could get a good rewards card right away because I had a credit history. I don't know how common this type of deal is, but I would counsel students who are worried about establishing a credit history to look into their school's credit unions.
Posted by: synapse | August 27, 2008 2:20 PM
synapse, your school had a credit union? I don't know if that's very common. My boyfriend is at the University of Minnesota Twin Cities, one of the largest campuses in the country, and I don't think they have a credit union for students.
Posted by: Natalie | August 27, 2008 3:57 PM
Great graphic! I printed it out and gave it to my 18-year old. She told me that today a bank was set up next to the long line at her college bookstore. The bank was serving donuts to anyone who signed up for a card...
Posted by: MLW | August 27, 2008 10:45 PM
I have a VISA debit card hooked to my ordinary bank account - no credit, no payments, nada. Of course, I have to keep money in the account, but that's no more hassle than not maxing out the credit on a credit card.
There are two kinds of people - ones that can keep the pyments up on their cards, and ones that blow through the max on one after another.
The first kind don't *need* consumer credit - they are able to live within their means and just need to educate themselves to use a different setpoint.
The second kind shouldn't use consumer credit. They'll go bankrupt.
Either way - revolving consumer credit is a scam.
Posted by: Paul Murray | August 28, 2008 3:59 AM
I disagree. A person's credit score and history is used to judge their fitness for various things other than credit cards. If you want a mortgage, you won't get a good rate without a good credit history. If you want to take out student loans, no credit history again means a high interest rate. Even if you want to a cell phone, if you have no credit or bad credit you have a pay a large deposit (several hundred dollars).
Posted by: Natalie | August 28, 2008 11:08 AM
@Natalie: The credit union was for both employees and students. It was a very small school, too- about 900 undergraduates, 1000 grad students. It's too bad they aren't more common.
Posted by: synapse | August 28, 2008 3:17 PM