Credit Card for College Freshman

[wish_it_was_april]

You are right, fendergirl. But unfortunately, people don't always read or understand the fine print, or don't quite put it together that charging now means paying later. And that the interest mounts up awfully fast. Seems basic to me, but lots of "smart" people get themselves in trouble with credit cards. So we are wise to warn our kids....

[Icarus]

I completely agree with Maize - dealing with credit and learning to use it wisely is simply a part of growing up. Credit has become such a necessary and ubiquitous part of life that it is foolish not to get a credit card in college. The workings of credit are actually quite interesting - i've been posting for a while in a credit-related forum, and the stuff I've learned about dealing with creditors, the FDCPA, etc etc. is amazing.

I'm a sophomore in college now, and I've gotten two credit cards for myself (a Citi platinum and AMEX Blue) with a total credit limit of about $6000. I manage all my finances independant of my parents - I never buy more than I am able to pay off in full at the end of the month, and have never missed a payment. I've maxed my cards out many times, which is useful because I get CLIs (credit limit increases) often. It is to the point where I try not to use anything but a credit card if i can, and I rarely carry cash anymore. Even now, with only about a year and a half of revolving credit, my FICO scores are in the mid 700's. By the time I graduate, I want to be in the 800 club
Even if you only get a card that you will use once a month to buy a pizza or something, that is so much better than nothing. You want to get started with credit as soon as possible.

[jym626]

Icarus-
Are your credit posts in CC? I imagine you have a lot of useful information. You should be very proud of your financial acumuen.

[newmassdad]

A full time college student like Icarus maxing out a 6,000 credit limit "many times" in order to get the limit increased? Two cards? High FICO score?

Wow. Where do I begin?

- First, Icarus, what you posted in NOT your FICO score. It is a credit score perhaps similar to, but probably higher than, your FICO score. There have been recent articles about this. Suffice to say the true FICO score is quite proprietary.

- Getting high credit limits isn't a game, IMHO. I applaud your discipline for paying off in full every month. Be aware, though, that high credit limits can work against you in getting future credit. A prospective lender will look at your overall borrowing ability and decide that your income level could not support payment of all your available credit if you maxed out all your cards, and support new credit.

- Be aware that prospective creditors look at much more than just a credit score in making credit decisions - history length, debt/income ratios, time on job etc. So don't kid yourself that having a card and making prompt payments is the only important thing. I suspect it is more balanced: having a card can help or hurt, but is not the full story.

This decision is an intensely personal one - personal, ultimately, to the student, as we parents do not have any real control. We only advise, and live with the outcomes, through our kids, or personally, if we help out, if things go bad.

For every Icarus who is responsible, I suspect there is a kid like "cautionary tale" who screws up. And the reason companies shower college kids with credit offers is because these same companies know that college kids are still (statistically speaking) highly dependent on parents with far greater financial resources who will bail their kids out. So the issuers get the best of all worlds - high fee income from "problems" (late payments etc. are where the real money is) coupled with very low credit risk. Peer pressure (miss the spring break trip? don't worry, you can always pay it back later...) is a real issue.

[1moremom]

I also wondered where a college student gets the money to pay off a $6K credit card balance on a regular basis. Am I missing something?

[fendergirl]

I don't know about charging 6000 in a month, but I know i've done up to 1000 before. for example, i pay mine off every month in full as well, but my balances are always different. sometimes it's 100 bucks, sometimes its 1000 (the only time it's been 1000 was this past christmas.. i charged like 600 bucks at one store.. then waited for two months for my 300 in rebates to come - lol!).. but I always have enough money in my bank account to pay it off completely. I wont charge something if i don't have the money in an account for it. i don't view credit cards as a loan (ooh.. i can buy this now.. and pay it back slowly over two years!).. but merely as a way to purchase something now and pay for it later (like in two weeks when the bill comes). I don't like carrying around cash, and it's a great way to work things. and, how does a college student get 1000 to pay off a credit card? By working. I got roughly 850 dollars for my Christmas Bonus this year, and that paid all went towards that bill. (The only reason I bought so many things around Christmas was because I knew i was getting a nice bonus to pay for it)

[acampbel]

D obtained a credit card(unbeknownst to us) within weeks of arriving on campus. complete with a picture of her school--it was one of those "affinity" cards, so I assume her school somehow gets a portion of what she charges(otherwise known as a kickback!!)..she had worked part time for the previous 2 years, which may have helped her with the credit check.It actually worked out fine, bills came to us, she only used it for normal food/clothing type charges.

S applied for a card when we took him to open a bank account for college use. He had no work history, but still no problem in obtaining the card, maybe it helped that he had an account at the same bank...again, we get the bill, he has no food plan, so he charges groceries...no problems...

[Icarus]

jym - no my credit knowledge and posts comes from a credit-specific forum, not CC

newmassdad - why the disbelief? do you not think that someone my age can know what they are talking about when it comes to credit? That being said, you are the one who is incorrect.
No kidding what I posted is not my FICO score - I gave a general range (mid 700s). Last I checked, my FICO according to Equifax was 743. I'm not sure what articles you are referring to, but I can assure you that this is my true FICO according to EQ (there are two more, from the other two credit reporting agencies). I wouldn't say that the FICO score is proprietary (since its quite obvious I can get it, as can anyone who pulls my credit reports), but it does change day to day... actually it's more month to month, or whenever your revolving accounts (which are credit cards and the like, not loans which are installment accounts) report your month's balance. A big part of what determines your FICO score, among other things like length of established history and any late payments, etc. is your percent utilization (balance divided by total credit limit). Hence, paying in full before your statement comes out is beneficial to your score, but it is also good to not do that several times a year, because otherwise it appears as if you never use the account.

Second, no I don't think that getting high credit limits is a game, and that is not the only reason I seek CLIs. I do not intend to let it get to the point that my available credit interferes with my ability to get new credit. But how many people do you know whose combined credit card limits supercede their yearly income? I can assure you there are many, and it does not hurt their credit rating in the least? Why? Because they have shown by their history that they can handle the high limits, which is more important than simply the credit limit to income ratio. That is what I intend to show. At the same time however, building history on two cards is better than building history on only one, etc. and so I have several cards.

Credit is more complicated than I initially imagined, and I have learned a lot and continue to, and hopefully will have exceptional credit later in life.
Anyway, to 1moremom, obviosly my credit limit has not always been at $6k, so it hasn't always been such a high balance to max out. But to answer your question, it certainly isn't monthly, but I do use my cards to the point of maxing them out by paying my housing fees and buying christmas gifts and such - so its really only about 4 times a year that they are truely 'maxed out'. But like I said, I've never not paid in full at the end of the month.

[jym626]

newmassdad-
You brought up many great points. Especially poignant is the fact that there can be a problem with having too much available credit, esp. if income is low.

My s. started his "creditcard" life in HS with a gas credit card (in his name but on my credit as he wasn't 18 yet). Was limited to paying for gas and buying a soda or snack at the gas station. Low limit, low risk, but he learned to to be responsible with it, not to leave the card at the gas station (almost did once), and he gave me all the gas receipts. When the bill came, I paid it (he was driving himself and little bro to school), but I went over it with him. He never realized how quickly those gas charges added up (it was a 60 mi round trip to/from school every day in HS).

Next stage- a credit card in his name on my account (still in HS). He often helped people with computer repairs, and needed to buy parts, etc. He could put it on my card but get reimbursed by the people he bought the parts for. He got pretty good at keeping up with receipts, rebates, etc.
He always paid me back for any personal purchases he made on the card-- I did not run a tab with him. If he wanted to order something on line, he could use the card.

Fast forward to freshman yr of college, and I apologize to those of you who have read this on previous threads. He still has the card attached to my account, for things like airline tix home, but he found and qualified for a no-fee card (citibank) that pays him a percent back on purchases. He gets the bill at college and pays it electronically via on-line banking from his cking account.

So, all in all, he's grown with the cards, has a reasonable credit limit on his that he has no reason to increase, and has learned excellent money management skills. So far, so good.

[newmassdad]

Icarus,

OK, you are partially right, at least with Equifax. For the full story on credit scores, see this article:

http://www.boston.com/business/globe...created_equal/

[Icarus]

hmm interesting article. It is true that there are several places that advertise credit scores that aren't actually the FICO score (jokingly refered to as FACO scores)
But I don't buy my reports/scores from the CRAs. I buy them through a website that is a division of Fair Isacc Corporation(www.myfico.com, also referenced on www.fairisaac.com), so I'm sure that what I'm getting is my actual FICO score.