Why Students Flunk Intro to Credit

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College students find credit cards easy to acquire but hard to pay off

You go to college to learn, broaden your experience, meet interesting new people, even to have a fair amount of fun. Nobody aspires to a higher education to acquire long-term credit card debt. Nonetheless, more and more credit card-carrying college students are piling on debt at a time when they're least able to sustain timely payments.

Fair Isaac and Co. (FICO), purveyors of credit scoring software, find that opening several credit card accounts in rapid succession exposes young, inexperienced borrowers to overextended indebtedness that lenders consider risky business. The long-term implication for heavy borrowers is they risk credit score failures, which can negatively affect their ability to secure a mortgage.

"The irony is that by taking advantage of students, lending institutions are helping to produce unprecedented numbers of credit risks who in the future will have difficulty qualifying for mortgages and other loans," says Jordan Clark, president of the Washington, D.C.-based United Homeowners Association.

Smart alternatives: Of course, college students aren't the targets of mass marketing by mere happenstance.

"Credit card companies are like cigarette makers: They want to addict people when they are young," says personal finance adviser Eric Tyson, author of "Personal Finance For Dummies." He recommends college students shun credit cards and opt for a debit card.

Another option is "smart" cards: prepaid, set-amount gift cards and "rechargeable" credit cards preloaded with a certain amount. Once that amount is expended, parents decide whether to recharge them with additional spending power. Besides avoiding debt, smart cards can allow a student to maintain good credit through college, producing a long-term payment history, a critical component when applying for a home loan.

Straight talk: One of your best approaches to help your kids lead a credit-wise lifestyle is to simply talk with them about the consequences of irresponsible spending. The book "Invest in Yourself: Six Secrets to a Rich Life," includes the following credit card advice for college students.

• Tell it like it is. Explain to your kids why they're such hot prospects. They don't want to be ripped off and will likely resent what's behind the credit card industry's hype. 
• Share experiences. While your kids have watched you charging purchases, have they seen the bills? Explain your credit card statement to them: the finance charge, grace period, and minimum payment trap. Explain why it's difficult to get ahead when you only pay the minimum due. 
• 911 credit. One approach to giving your offspring a credit card is to instruct them to use it for emergencies only: If they can eat, drink or wear it, it's not an emergency. 
• Set limits. Tell your kids what will happen if they run up bills they can't pay. Will you bail them out? Will they be on their own? Lay out the consequences.

By taking the time to consider what seemingly easy money now can mean to their long-term goals, students are more likely to stay the course of the poor college student. Temporary subsistence on Ramen noodles and mac and cheese is small penance for the higher ambition of home ownership just a few years away.