Phi Beta Cons

One Reason for Student Credit-Card Debt

People often decry the massive amounts of credit-card debt students incur in college. One can hardly blame the credit-card companies for their aggressive marketing — they are of course happy to have kids (who have poor impulse control) spending money with the backing of Mom and Dad (who have the wealth to keep Junior from defaulting).

One can, however, blame the current credit-scoring system and the way banks use it; thanks to these factors, students practically have to get credit cards in college. Via Slate, this is what happens when you wait until after graduation:

I am a 27-year-old professional with a full-time job, no mortgage, no children, and no student loans. With the exception of one outstanding dental bill, I have absolutely no debt. I pay my bills on time; I never miss rent. . . .

Why, despite my decent financial record, am I a particularly bad candidate for a credit card? I’ve got no credit history. Typically, the best time to get your first credit card is in college, when banks litter campuses with offers. One study estimated that students receive 25 to 50 applications per semester. I was always wary of getting a credit card as an undergrad. I was living hand-to-mouth, and it was always easy enough to pick up a bar tab with a debit card. What I didn’t realize was that I’d very soon need a credit card to live. If I’m doomed to a life without plastic, what am I going to do if I want to buy a house or lease a car? There are certain things you can’t put on a debit card.

My quest for credit is a paradoxical one: How can I establish a credit history when banks won’t let me create one in the first place?

I experienced the same thing last year. I had a college degree, no debt, a full-time job, a sizable savings account for someone my age, and a perfect record of paying bills on time, yet I had to get a “secured” credit card — in other words, I deposited money into a bank, which loaned it back to me and charged interest! Seriously, how was I such a risk that even a low-limit credit card wasn’t an option?

(I ended up with the same card the guy in the Slate article now has, though he’s a lot less bitter about it. He calls a secured card a card with “training wheels” — instead of a flat-out rip-off that benefits the bank at zero risk while doing nothing for you but build the “credit” the bank itself demands.)

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