More and more students of college age–and sometimes even younger–own credit cards nowadays. If you belong in this category, you probably already have one yourself, or are planning to apply for one in the near future. While this can be a good thing, it is also a potentially serious step that could have long lasting effects on your financial life in the long term.
This issue brings up the question of why credit card companies offer credit cards to college students–who do not typically have a lot of money–in the first place. As it turns out, it is a simple matter of economics. Well, that is the main reason at least, and there are actually a few others besides.
One of the ways that banks make their money is through the collection of various fees for their services. These can come in the form of annual fees, late payment charges and interest charges on existing credit card balances. We mentioned earlier that college students usually do not have a lot of money to spare. While this would seemingly make them poor candidates for credit cards, the fact that they are not able pay off their balances totally every month assures the banks that they remain in that present arrangement for a long time; a captive audience if you will. This means that the banks in question are in a position to earn money from these customers for a longer period of time.
It is not all bad news however. There are actually a number of ways that a credit card can work for you if you are a college student, provided that you use them wisely.
Students typically use credit cards for purchasing books and materials that they need in school, or for personal or medical emergencies. Over time this can add up to quite a large amount of transactions, and if a student is able to manage these purchases and the associated bills effectively, doing so will not only teach him or her valuable financial lessons that will be useful later in life, they will also contribute towards building a good credit record.
Credit records take into consideration your history of paying bills, the accounts that you have signed up for and many other factors. A good credit record will have a great deal to do with how easily you will be approved for various types of loans, the rate of insurance that you will have to pay, and in some cases it may even affect your prospects for future employment. Paying your bills on time–in full is even better–will go a long way in building a good credit standing.
Conversely, paying your bills past the due date or worse, not at all, will hurt your credit standing. If you are just starting out with credit cards, you may want to get started building a good credit record by signing up for a card with a low limit, so that you can control the amount that you spend.
So you see, the effectiveness of a credit card is really largely a matter of personal responsibility and accountability.
