Last Open Season for Credit Cards

Last Open Season for Credit Cards
by Heather Koerner on 09/24/2009 at 12:17 PM

It's fall. The air is crisp. University towns are booming again. Classes have commenced. Football teams are almost past their puff schedules to the real teams. And the tables are probably up.

You know, the "Sign Up For a Credit Card and Get a Free (Pizza/T-shirt/iTunes card/whatever)" tables.

As regular as clockwork, it seems, VISA, Mastercard and Discover show up on college campuses, intent on starting coeds into their life of debt with their own particular card. And every year, some (though not all) fall for it: "Wow, I'll just take the free pizza and only use the card for emergencies."

Then, two months later, groceries become an emergency. Three months, clothes. Five months, pizza for the suitemates. And on it goes. (My own alma mater has found a unique way to discourage the tables.)

But that all stops this year. ""We're calling it the last open season on credit for college students," Gail Hillebrand, an attorney at Consumers Union, told USA Today.

That's because, according to the article:

Legislation signed into law in May will prohibit credit card companies from offering gifts to college students who agree to fill out a credit card application. The legislation also prohibits lenders from issuing credit cards to individuals younger than 21 unless they can prove they can afford payments or get a parent or other older individual to co-sign.

Up to now, the marketing seems to be working. In 2008, 84 percent of college students had credit cards (up from 78 percent in 2000) and a whopping half had four or more cards (up from 32 percent in 2000). Yeesh, what do you need four cards for?

The law's provisions don't take effect until February of next year. So, some consumer advocates fear that this fall will be the most aggressive marketing yet.

I'm a little ambivalent. One side of me says that we should educate college students (and high school and middle school students, too) and then let them make choices and deal with the consequences. But the other side says that yes, someone should have to prove that they have a self-produced income stream before being allowed to enter into the adult financial world.

In a sane world, a bank and/or credit card company would want collateral or a proven income track record before loaning money. But then, we haven't exactly been living in sane times lately. And I'm not sure if credit card companies are that concerned about college students getting into over-their-heads-debt. From the company's perspective, either momma and poppa will pay it off or the student can carry the debt into their income-earning years (with a nice, hefty amount of interest).

Thoughts?

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1. Tami said the following at 12:36 PM on Sep 24:

I actually think it's a good idea for college students to have credit cards. But absolutely, with credit limits reflective of what they can actually *afford to pay back.* And parents/guardians should be teaching them how to manage those cards wisely.

But even when I was in college, I thought those booths were crazy. Really? Sign up with a card company with a huge APR just for a t-shirt or pizza? You're better off getting a debit card or a secured card, and buying your own tshirt/pizza/whatever.

2. Adam said the following at 12:47 PM on Sep 24:

Couldn't you use the exact same logic regarding companies offering student loans?

"In a sane world, a bank and/or credit card company would want collateral or a proven income track record before loaning money. But then, we haven't exactly been living in sane times lately. And I'm not sure if credit card companies are that concerned about college students getting into over-their-heads-debt. From the company's perspective, either momma and poppa will pay it off or the student can carry the debt into their income-earning years (with a nice, hefty amount of interest)."

3. JuliaH said the following at 1:07 PM on Sep 24:

Credit cards are a neccessity in today's world. I think everyone over the age of 18 should have one (albeit, starting with a very low limit.)

You can't rent a car, hotel room, buy a cellphone plan, rent a video, etc. without one. My poor friend found that out the hard way when she tried to pay up front for a night's stay in a hotel at a friend's wedding. No where in town would accept her cash - they would only accept a valid credit card as payment. She ended up having to beg a friend to put the room on her card so she wouldn't have to sleep in her car for the night.

Credit cards are useful tools if not abused. That means paying the complete balance off at the end of the month. In addition, they are a wonderful way to begin building credit at a young age.

I think that trying to legislate common sense is a bad idea.

4. Trisha in AR said the following at 2:11 PM on Sep 24:

It would be nice if there was a mandatory semester course on finance for these new students. I didn't have the pressure of credit cards or incurring unnecessary debt when I was a young adult. These poor kids are slammed with it. And not every child has parents who are financially responsible, so it's sad to see so many of these kids tied down early on in life.

I'm trying to instill early on to my children to avoid debt in life. My daughter is 7 and she knows my thoughts - never EVER get a credit card. Get a secured card if you think you need one. My 14 year old son will soon be off to college in a few short years. And while we will be seeking out scholarships and grants, credit cards are not an option. I suppose I like the tough love approach - get a job, get two, if you need funds.

5. M.L. said the following at 2:30 PM on Sep 24:

I agree that these tables are predatory and easily lure students with their "free" merchandise. However, I wish that more could be done--why can't there be workshops for incoming freshmen that show them how to be financially responsible? At many campuses, college freshmen attend various meetings and workshops their first week of college to help them through many of their "firsts" as an adult (like laundry). If credit card companies can't get to students through these tables, they'll find a new eventually.

FWIW, when I was 18, my mother took me to the bank to get a credit card in my name (for credit score purposes), and we had a discussion with a bank representative about the interest rates attached. I only used it for buying books and paid it off immediately. Now, I use it for occasional travel expenses (my bank provides a sort of "travel insurance" for using the card), which again, are paid off.

6. Elisa said the following at 2:44 PM on Sep 24:

College years are in fact the best years to learn how to budget well financially. Credit cards should be limited as a privilege rather than abused financial freedom. It is really time for people to break free from debt bondage.

7. Paul said the following at 2:58 PM on Sep 24:

The difference between loans for student debt and credit card loans is that a degree 'usually' appreciates in value, so in most cases, education will allow you to earn more.With credit cards they are almost always used to buy things that go down in value, like a pizza, so you end up paying for things long after they are gone.

8. Chris said the following at 4:24 PM on Sep 24:

I completely agree with the article, because I've learned the hard way. When I was in college I bought into the lie that you need to establish a good credit score in order to buy a house some day, and you need to build credit in order be approved for things. Credit is a fancy way of saying a 'debt' score.

I racked up a few thousand dollars worth of credit card debt after college, and a bought a car with a car loan and bought the lies people told me.

Then I found the book The Total Money Makeover and Dave Ramsey's Plan. I highly recommend this book to anyone who wants a great down to earth common sense book about getting out of debt and being responsible with your money.

Here are a few myth's that are dis proven from comments above, all reference from the book:

Fact: A debit card will do everything on it that a credit card will do without going into debt.

Fact: You don't need a credit card to buy a house. A credit score of 0 with a good renting record is more than enough proof that your capable of buying a house and making the payments.

Fact: Having a car payment is a guarantee that you will stay in a middle class income for the rest of your life.

Fact: You can go to school and graduate without using student loans.

Now that we're on a cash only budget our life has just turned around. We have no credit cards or credit card debt, both my wife's car and my car are paid off, and we're paying for an adoption and paying off student loans with Cash. This book has changed my life too much not to share my story.

Chris

9. DEH said the following at 4:28 PM on Sep 24:

As someone who chose to enter the adult world before age 21 by getting married at 19, I kind of balk at the new rule (regarding the under-21 crowd and credit cards). It would have been interesting arranging a honeymoon without a credit card. But then, my husband's card was considered a "student" VISA, with a limit of $500, which the credit union upped to $1000 after a year of on time payments. Just because some 18-year-olds don't understand debt and compound interest doesn't mean all don't. (Granted we probably could have got the card anyway by proving our income.)

Even now, my husband and I have two cards with a combined limit of only $1600. We have them for emergencies and for paying for things like hotels, but we certainly aren't going to ruin ourselves financially in the unlikely event that we max out at $1600.

10. Kristina said the following at 5:16 PM on Sep 24:

They should definitely have lower limits. This will teach these kids how easy and quick it is to reach your limit if you don't watch out, while still ensuring that they don't get too out of control. Part of early schooling should include money management. I don't know why it isn't.

I was never tought to manage my finances wisely; however, I learned very early on not to mess with my credit when as a small child I had to witness my parents file for bankruptcy. My money management has not been perfect and I currently have a good amount of debt that I'm trying to pay down right now, but my credit is still great and I will starve before I skip or am late on a payment. I'm glad I was able to teach myself even a small measure of responsibilityam this way, but I wish my parents themselves would have TOUGHT me to be a little more wise with my money instead of SHOWING me what can happen when you are unwise with your money.

11. Rabenstrange said the following at 5:30 PM on Sep 24:

I think this law is simple nanny-statism.

Credit cards have become an almost necessary tool in the current economy particularly for online transactions.

This law is going to exclude young people from a large segment of the online marketplace and will cause real damage to our economy.

12. Tami said the following at 5:30 PM on Sep 24:

Some schools offer "college success" courses that usually include some element of financial planning, but I am not sure how many of those schools require you to take them.

13. A.M.C. said the following at 6:15 PM on Sep 24:

Regarding the "collateral" idea:

I've actually heard of a regional bank that applies this practice to their credit cards. Supposedly, you can get a credit card from them, including VISA gold cards, at any reasonable credit limit even if you don't have the credit history... because they require you to have a concurrent certificate of deposit with a minimum balance that is equal to your credit limit.

==> Personally, I think this is a good idea for both parties. From the bank's perspective, this practice would reduce the risk of default to zero because a CD is used as a collateral. And this can be good for the cardholder, too, because you can't spend any money that you don't have.

[Of course, some might argue that this policy has an obvious down side: those who have enough income but don't have enough disposable cash would have to settle for a lower credit limit. Then again, one could also argue that if you don't have enough savings to afford that CD (which can't be withdrawn as long as the credit card is active) in the first place, your financial position is probably not secure enough for that credit limit anyway!]

14. Joanna said the following at 7:14 PM on Sep 24:

A few of you have claimed that credit cards are a necessity for booking hotels, shopping online ect. There are ways around this. I do not have a credit card and get by fine. For me having a visa debit card solves the problem. Because it has a visa number it works everywhere online and in the real world that visa does. The difference is that instead of racking up debt, it draws on the money in my bank account. When i run outta money i have to stop spending. I assume other banks/card providers would also offer something similar. Visa gift cards can also be a useful option for online shopping, as can be paypal which can draw on your bank account.

15. Elizabeth (from Canada) said the following at 8:09 PM on Sep 24:

I'm glad I was able to get a student credit card; I've not had a very steady income (volunteering overseas and so on), and it would have been very difficult to get one post-school because of that. Now, I have a card, and whenever I get calls about lower interest rates, I say they are no use; I never carry a balance, so I don't care if my rate is 20%! Like several others have said, a credit card is pretty much a necessity today, and I'm happy I have one for when I need one. But I use one simple rule for my purchases on it: if the money's not IN THE BANK already, then I don't need what I want to buy!

16. Leah said the following at 10:33 PM on Sep 24:

Wow. Most people I know my age here in Australia don't have credit cards. Most people don't usually get one til they start a fulltime job.

So I guess that disproves Rabenstrange's (11) comment. You don't 'need' a credit card at all these days. You don't have to pay for everything online. Especially college students at any rate. And it's not going to hurt your economy. It certainly doesn't hurt Australia's economy.

I don't see how this law is a problem. College students are perfectly allowed to get credit cards: they just have to prove they'd be able to make the payments. Are you saying "they should be allowed to get one regardless of whether they can make the payments!"? The only people it's cutting out of the online marketplace are those kids who wouldn't be able to afford what they're buying anyway - and besides, they could borrow a parent's credit card. That's what I used to do before I was married and wanted to pay for something online.

17. Sara VC said the following at 2:02 AM on Sep 25:

When I was in college, I fell for one of these offers (apply for a credit card and get a free t-shirt) because the salesperson told me that my application would surely be rejected. So it seemed like a free t-shirt for writing my name and address down. Not bad for a poor college student.

But a few weeks later, I got a letter saying that I had been accepted for the card. So much for what the salesperson basically promised. It was a huge headache to cancel the card (which I never intended to use) and has had a negative affect on my credit score.

Live and learn, I guess.

18. Dan Gill said the following at 7:12 AM on Sep 25:

"Fact: Having a car payment is a guarantee that you will stay in a middle class income for the rest of your life."

So nobody who has had a car payment has ever become wealthy? That is what the "fact" is saying, and it is obviously false.

19. V.V. said the following at 7:48 AM on Sep 25:

I had my first credit card when I was 18, just before starting college, and had a part time job. I must say, years later, I never racked up any significant amount of debt on my credit card. I don't think I ever even crossed the $1,000 balance threshold. My father instilled in me a pay-with-cash mentality, and, thankfully, that's what I still do for the most part (with a few minimal "treats" here and there). It's a matter of self control, and delayed gratification. My fiance and I are getting married next month and I'm glad to say, we have no credit card debt. Whatever we charge, we each pay off in full or in a reasonable amount of time. And, since we've both purchased good, used cars in cash and have no car payments, we don't have to worry about those joint payments when we marry. I guess with money, like anything else, it's about self control.

20. Mark W said the following at 8:55 AM on Sep 25:

I don't think the banks are at fault here, and I don't think legislation is the answer. A reward for signing up for a credit card shouldn't be subject to age discrimination. And also, doesn't it seem strange to anyone else that in the US, at 18 you're old enough to enlist in the military, smoke, and have sex with someone twice your age, but not old enough to drink, sign up for a credit card, or drive a rental car? Pick an "adult" age and stick with it people.

Credit card companies, as private for-profit corporations, are concerned with what they should be concerned about: profits. If the credit card users are dumb enough to charge things that they have no way of paying off... well, that was their choice. It's not like they don't have plenty of examples of people living in debt-hell to learn from.

Personally, I charge everything I can. I never use cash unless the company I'm dealing with doesn't accept credit cards. And I've never paid a cent of interest. It's really not that hard - keep track of your spending, never use your credit card to buy anything that you can't pay for in cash, right now if you had to, and pay off your balance in full each month. There are some nice benefits too - like racking up free vacations and frequent flyer miles, and allowing your cash to sit in your bank account for as long as possible to earn more interest.

Also, I think this legislation may already be in effect - or else credit card companies are jumping the gun to ensure compliance. I was at a college football game last weekend and while walking out of the stadium I saw a credit-card sign up booth with a banner that said "No gifts for students under age 21."

21. Emily said the following at 10:15 AM on Sep 25:

To establish credibility: I am an Economist. I am also married, with a car, and my husband is working on a PhD; all without a credit card.

People on this post need to stop saying that a credit card is a necessity. Debit is sufficient for everything that was listed. Really, they aren't a necessity. Seriously.

Also, comment 16 is right on target. No one is making a law saying that college students can't get credit cards. Just like applying for student loans, you must prove that there is a reasonable likelihood that you will pay it off. And a credit card IS a loan, you are spending someone else's money and then paying them back. A lender has every right to make sure they are making a wise investment.

"Establishing good credit" is also possible through paying your bills on time (electric, medical etc.), not having any debt, and paying rent on time.

Our culture has bought into the idea that we have a RIGHT to spend money we don't have. That is what got our country into the Economic crisis we are in.

Shame.

22. JuliaH said the following at 10:55 AM on Sep 25:

If credit cards are not neccessary, please explain why my firend was unable to find a single hotel in Regina, SK that would accept cash or debit as payment for a night's stay, even up front.

23. Trisha said the following at 12:24 PM on Sep 25:

I'm glad to hear this because 20 years ago when I went to college (started out in community college) I got lots of c.c.'s and eventually I had to drop out of college to go to work full-time to pay off the debt. Today I just have on c.c. and I'm back in college part-time (& at the moment unemployed since the end of Nov. 2008).

24. Hannah C. said the following at 12:29 PM on Sep 25:

In the United States, you NEED a credit card.

You need it if you want to do any sort of traveling, especially if you want to stay in a hotel. You need a credit rating if you want to buy a house (I know a couple where the man had always paid for everything straight out, but this negatively affected them when trying to get a loan for a house). You need credit cards to build credit rating. (Or student loans...but those are worse than a credit card.)

There are ways to use them wisely, and I do my best to do that - if I do spend too much I PAY for it at the end of the month because I ALWAYS pay off my balance. Less interest, and I don't get to push off money and pretend I didn't spend it when my bank account feels the effects.

25. Tamara (from Canada) said the following at 3:27 PM on Sep 25:

@ #14 Joanna & #21 Emily:
I would agree that generally there is no need for a credit card. But I would caution you in saying that you can stay at a hotel without one. Even a Visa debit card doesn't always work. I had one of those and when I tried to use it to pay for the hotel I was supposed to stay at for a wedding they refused to take it - saying that because there was no actual credit attached to it they wouldn't accept it.
Luckily for me, I grew up with the bride's family and they allowed me to sleep on the couch in their hotel room because otherwise I would have been sleeping in my car in a parking lot somewhere and getting ready for the wedding in a public washroom somewhere.

Do I think that credit cards are abused in our society today? Absolutely! But, there are also times when you do need to have a credit card.

I currently still don't have one for other reasons, and let me tell you, it seriously limits what I am able to do for my holidays from work, even though I have more than enough money in the bank to pay for the holidays. It's just kind of hard to book flights/hotels/etc without one and then even if I do, what if the hotel will only take credit cards as payment (as in my experice above)? I'd rather not get everything all ready for a holiday and arrive somewhere only to find out that they will only take a credit card for payment and I'm now stranded somewhere.

26. DannieA said the following at 3:32 PM on Sep 25:

I have one credit card. It's in a box at my house.

When I go on vacations and book airline tickets/car/hotel, I'll use it and pay off the bill with the money I saved up for it.

Other than that, you don't NEED a credit card. The debit cards today have the visa/mastercard logo so they can be used as a cc but draw the money from your bank.

Then only reason I don't like using my debit card to rent a car is because they take out 100 dollars more as "insurance" that the car rental will be paid...and I don't like too much taking out and crediting my debit/checking account.

27. Kellie said the following at 4:06 PM on Sep 25:

#8 said: "Having a car payment is a guarantee that you will stay in a middle class income for the rest of your life."

How does having a car payment have any effect on income?

28. Beth G. said the following at 12:20 AM on Sep 27:

I'm all for this! Frankly, I wish I'd had the pleasure of writing your article myself. College was more than 10 years ago for me, but I remember the trouble I got into, falling for this kind of "marketing pitch."
But alas, I was probably one of the lucky ones. I only signed up for one card. Many others around me signed up for several of them. In less than two semesters, I maxed out the lowly "student" limit ($1,000) on a variety of unnecessary purchases. I remember, as a freshman, standing in line somewhere and overhearing several seniors remark to one another about the slew of maxed-out cards they carried. Watching them wince was a wake-up call.
I also remember the enormous relief I felt when, four months after I had maxed out my card, I paid off the balance and cut it up in pieces. I didn't carry a credit card again until sometime after graduation, and even then, it was just one card. I am committed to keeping it that way and to ensuring any charge I put on the card can be paid off in full at month's end.
Since then, anytime a new high school graduate asks
me for advice about college, that is the first thing I tell them: Don't fall for the gimmicks. Stay far away from the credit card sign-up table at the student union.

29. Becca said the following at 7:40 AM on Sep 27:

As I am just finishing up college myself, I think that it's too easy to get into debt as a college student. We are no longer being fully supported by our parents, but if we have a full course load it's likely that our expenses exceed our income. Sometimes that can be a difficult balance when we live in such a highly consumerist culture that encourages us to spend more and more each year. I've dealt with this by including my parents in financial decisions. Personally, I don't have a credit card anymore, just a debit card that's linked to my bank account. That way I will not be tempted to spend any more than my part time job can support. I think that more college students should be encouraged to do it this way and stay out of debt.

30. Leah said the following at 7:56 AM on Sep 29:

JuliaH, 22 - holidays are not a necessity of life. Yes, credit cards may be necessary for certain things that exist, like buying things online or staying in certain hotels. But pretty much everything you HAVE to pay (eg. phone bills, power bills, rent, mortgage, etc) CAN be paid in ways other than online/with a credit card.

People who are talking about not NEEDING a credit card are referring to necessities, not luxuries.

Besides, this is college students we're talking about. I don't think many of them are up to paying for holidays etc.

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