It used to be a rite of passage for America’s incoming college freshmen, but Arthur Schafer for one says he is in no rush to apply for his first credit card.
“I don’t like to owe anybody anything,” said the junior business management major at Valdosta State University in Georgia. “Sometimes when you have money it entices you to live above your means, which is something I don’t want to do.”
The chastening impact of the recent global recession, the tightening of standards for younger card applicants by lenders and a federal law passed in 2009 are all contributing to a decline in the number of college students carrying plastic. Financial experts say the trend could cut down on the number of younger borrowers who get in over their heads, but also can prevent some from establishing an early history of handling debt to build up their credit rating.
Credit card usage among college students declined to 35 percent 2012, down from 40 percent in 2011 and 42 percent the year before, according to a 2012 survey by Sallie Mae, with the sharpest drops among sophomores and juniors. Of those with a card, the average balance was $755. Thirty-three percent reported carrying no balance on their credit card.
Tough economic times and the 2009 Credit Card Responsibility and Disclosure Act signed by President Obama, bringing new monitoring and disclosure requirements for card issuers, are cited by the study as prime drivers of the trend.Unlike years past when instant-approval card applications would clutter up dormitory bulletin boards, credit card marketing now requires anyone under 21 either to have independent income or a co-signer before being allowed to acquire a credit card. Credit card companies and universities face new requirements on marketing to student populations.”We’re coming out of an economy that has been hit with the message to stay away from debt,” said Mark Schiffman, spokesman for the Association of Credit and Collection Professionals.
Parents of college students are also taking that message to heart: Daryl Muhammad, 51, has two sons in college and says the average college student doesn’t need a credit card. He said he has spoken to his sons about their finances.
“A college student, in my opinion, does not need to build up credit at the time. College nowadays does not guarantee a job after graduation” and most graduates are typically facing substantial student loan bills even without a credit card, Mr. Muhammad said.
Debit cards, which limit usage to what holders have in their bank account, have surged in popularity due to the lower risk compared to the classic unsecured credit line card. In 2012, twice as many students owned a debit card compared to a credit card.
“I have two debit cards that I view as a form of cash, which is why I choose it over a credit card,” said Mr. Schafer, “and I never have to worry about missing payments or spending what I don’t have.”
Although debit cards avoid the risk of default, establishing a solid credit history still remains a long-term priority for college students. Responsibly handling one’s first credit card can open the door to better borrowing rates on other loans and products later in life.
Nessa Feddis, senior vice president and deputy chief counsel for consumer protection and payments at the American Bankers Association’s Center for Regulatory Compliance, encourages students to obtain a credit card to start building a solid credit foundation, saying there are spillover benefits.
“Getting a credit card as a student is a good opportunity to build credit history, used not just for credit products but in other regions as well,” she said.
Hannah Lethbridge, a senior and public relations major at Lee University in Cleveland, Tenn., has owned a Discover student credit card since her freshman year. Ms. Lethbridge said the decision to apply for a card, made with her parents’ approval, has proved very helpful.
“I got my credit card for the sole purpose of building good credit,” she said. “Whenever I have an emergency, it’s there for me to use and I pay it off every month.”