MASSPIRG In The News

By PATRICK IAN CLARK
STAFF WRITER

Here's a common scene on the sidewalks near America's college campuses: Picture two fraternity guys, wearing "College" T-shirts like John Belushi in "Animal House," sitting outside a restaurant chain with a stack of clipboards. They're soliciting students to fill out credit applications in exchange for a 6-inch sub of their choice.

About 300 calories later, the credit application is sent off to a bank for processing what is likely to become the applicant's first credit card. The scene is the result of a fundraising cooperative venture between student organizations and large creditors like Citi.

The main goal of the banks involved "is to get as many cards into as many hands as possible," says Marc Price of Brightscore.com, a consumer Web site that educates patrons on their credit score.

A 2001 study revealed that 58 percent of college students reported seeing credit-card marketing tables around their campus. A third of them applied at one of those tables, the majority citing free gifts or food as a reason.

"There is no doubt we'd find a higher rate today," says Eric Bourassa, consumer advocate for MASSPIRG, which did the study and plans an update next year.

But Todd Romer, executive director of Young Money magazine, warns that "those tables are not the best environments to be looking for a credit card. Students should be researching the card they choose," rather than signing up with whomever solicits them, because the choices they make now will affect their future — from getting other loans to, perhaps, getting a job.

And that is a reality many young people don't understand.

Negative charge

Heather Strassel, a sophomore at St. Michael's College in Colchester, Vt., once used her credit card to purchase a plain white T-shirt to wear for her school's P-DAY, a pre-finals college version of field day.

"I purchased it, had the idea that 'OK, that's done,' I'll get the bill," Strassel says. She didn't know her bill was being sent to her home address in Cotuit, where her parents were collecting mail for her to open when she returned.

"I bought an $8 T-shirt, got home three months later and the bill read $125." Strassel says. The balance was the result of compounding late fees and the 22 percent interest rate of her Banana Republic credit card.

"I figured maybe my parents were taking care of it," she recalls. "But they didn't, and it definitely taught me a lesson."

"The key," Price says, "is having a solid understanding of credit education." Most students don't, though, and, unfortunately, most universities don't offer a personal finance course.

And even when Boston College's business school did a few years ago, it was forced to cancel it for lack of interest, according to Michael Barry, adjunct associate of finance.

Without that kind of knowledge, though, Price says, students risk damaging their financial future and personal resume. Employers are beginning to look at credit history when interviewing job applicants. A poor credit score could be the deciding factor when employers are considering two otherwise equally matched applicants, he says.

Positive charge

According to Price, it is never too soon for students of legal age to look into establishing their credit, as long as parents are monitoring their child's spending. He believes that the benefits of having a credit card far outweigh the risks associated with them.

A card can be used in cases of emergency and offers an alternative to carrying cash. By maintaining solid credit, cardholders positively influence the rates extended to them in the future for everything from insurance premiums to home loans, he says.

So how to start?

When looking for a card, the interest rate should not be the primary concern. The average interest rate for a first-time cardholder will range from 16 to 21 percent. Looking at the fine print to see how the creditor handles a late payment, which could potentially raise the interest rate, is just as crucial.

"It all starts with a name that is reputable," Romer says. Choose a creditor that your family trusts.

• For most students, it's most common to choose a card without an annual fee. However, card options with lower interest rates usually have an annual fee, some even requiring collateral before a line of credit can be extended.
• Look past the large graphics and boldface print that usually display the card's temporary promotional interest rates and find the disclosure box, usually found on the back of an offer or application. The box outlines the rates, fees and penalties that become active after the promotion expires.
• The last step for a new cardholder is to set the credit limit to $500, says Romer. The amount will cover most emergencies but also can be paid off quickly if the student is irresponsible.

After establishing an account, to keep in good standing, it is important to use only 30 percent of the credit extended. If you are over that percentage, keeping up with payments will maintain your present credit score. But by leaving 70 percent of your credit line available, your credit rating will increase, Price says.

If students are already in trouble with credit, they should be advised to immediately stop using the card, but encouraged not to cancel it. Even with poor credit, canceling the card makes it impossible to better their credit history with that particular bank and will affect the rates extended by other banks in the future.

Students need to set goals for paying off the debt, Romer says. By setting realistic expectations and paying it off in chunks, getting out of the red can be accomplished.

"The state of today's generation is 'I want to have it now,'" he says. "All (students) need to do is resist impulse buying."