Securing a credit card from company representatives on campus will afford students increased purchasing power and will enable them to establish a credit record. Company representatives, sitting at tables swamped with free compact disks and clothing, enthusiastically hand out these token items to attract and welcome new customers. However, applicants should note that the intentions of credit-card issuers are far from altruistic.
Early this decade, credit-card issuers adopted a tactic called "bottom feeding" to increase market share. This approach to card solicitation targets those with limited financial resources. This group, which generally encompasses college students, consists of those people most susceptible to credit-card debt.
Between 1993 and 1996, the proportion of households with incomes less than $20,000 that received card offers grew from 36 to 58 percent, according to one study. By no coincidence, credit-card delinquencies grew by 40 percent during that period. In fact, almost one in every three families whose household income falls below $10,000 currently has credit-card obligations that exceed 40 percent of its income. Given that the companies make money only when cardholders accrue debt by failing to pay their balance, their reason for targeting college students becomes evident: College students have little money.
Credit cards also increase the potential for indiscriminate spending. Because cardholders can elude billing for items bought on credit for up to one month, their financial limits seem less imposing. One study found that of the $60 billion college students charge annually, more than one-fifth of that amount stems from discretionary spending. A 1995 study by two Southern Illinois University professors polled 243 students about credit-card usage and found that students generally used credit cards for items such as clothing, but not for education or textbooks.
Despite the potential for problems with credit cards, they can prove useful and appropriate for well-disciplined spenders. The cards will help build a sound credit history for students who use them appropriately and will ultimately make them favorable candidates for loans, mortgages and credit in the future.
Many college students have proven their ability to handle the responsibility of credit: Sixty percent of college students responsible for paying a monthly credit-card bill pay the full balance each month, while only 45 percent of adult cardholders do so.
While company representatives solicit credit cards to University students at every chance, each person must employ personal discretion to determine whether he or she has the discipline for credit. A free T-shirt will hardly compensate for the financial trouble that may ensue from misused credit.