05 Nov Insights on How Students and Alumni Perceive Credit Cards and Credit Scores

Submitted by: Tanya Tanaro, Manager, Higher Education Partnerships, American Student Assistance

Recently, my organization had the opportunity to ask students and alumni about how they view credit cards and credit scores. We found that while many students and alumni know that having credit cards and building credit scores are important financial behaviors, there is a general lack of knowledge and understanding around this topic. So, what can higher education institutions do to help?

First, let’s explore the negative emotions associated with the subject of credit. Our survey respondents expressed feelings ranging from confusion and anxiety because they were unprepared and unfamiliar with credit management, to regret about building up significant debt already, to wariness about reintroducing credit back into their financial lives, even after they get their spending under control.

“As a recent grad in this time and age, credit cards are practically your ‘way to go’,” explained one respondent. “With one-plus year of no jobs, I needed these credit cards. It was definitely a long dark time, but I had to use these credit cards on my expenses. Now that I have a job, I am just paying back. It’s difficult to catch up with the payments, yet, I am trying really hard every day!”

Challenges

Many survey respondents reported they don’t understand how credit cards work (interest in particular), and don’t know how to pull or interpret their credit scores. Further, they don’t even know which resources to turn to for information.

This lack of knowledge translates into potential dangers on either end of the scale. On the one hand, it’s easy for students to over-use credit cards and build up a high amount of debt, especially if they are unaware of the repercussions of paying back at a high interest rate, or because they see no other option when faced with a bill they have to cover. That means they’ll have to pay down their debt and rebuild their credit score instead of starting off on the right foot after graduation.

“I currently do not have good credit and it affects a lot of things in my daily life,” one respondent told us. “I do have some credit cards now to help build my credit back up. Unfortunately, when I was younger I didn’t know the responsibility that I had to take when using credit cards and put myself in debt that I am still trying to change.”

But some students go too far to the extreme in the opposite direction, avoiding credit cards at all costs either because they’ve heard horror stories from peers or parents or due to the laws that restrict credit card usage among the under-21 crowd. Shunning credit cards altogether, though, may not be the best strategy. Instead, having one or two credit cards that they use responsibly, by paying the balance in full every month, will help students build credit history quickly.

Another challenge is lack of urgency. Students and alumni tend not to check their credit reports regularly, unless there is an upcoming purchase that demands good credit, such as a house or car.

How Higher Education Institutions Can Help

The trick for college administrators, then, is to teach students that credit cards can be a useful tool when used properly, and to get students into the habit of checking credit scores before they’ll actually need them. To check their credit reports for free, students can check out Experian and annualcreditreport.com.

One successful technique for financial aid officers is to try matching the content of your communications about credit with the time of year. Credit management is of interest year round, but there are certain times throughout the academic calendar when it becomes more relevant – and as a result, your efforts to engage students on the topic will be more successful.

For example, think about telling students returning to your campus in fall to check their credit reports, before they start applying for apartments. Around the holidays when buying presents and travelling are likely, warn students about the dangers of excessive credit card use. Ditto for spring break or over the summer, when travel plans may exceed realistic spending limits.

Similarly, the beginning of a new semester, when expenses can really pile up (tuition, books, supplies, moving costs, etc.) can pose serious trouble, as can the end of the semester, when savings/income may be running out. Students may have no choice but to rely on credit cards during these times, so it’s important to remind them to keep charge balances to a manageable limit that can be paid in full next month.

The good news is that, for some students, your education efforts DO pay off. Said one respondent: “I am an alumnus and can remember racking up debt on credit cards in college and then struggling to pay them off with summer jobs. Now, after learning ways to use them responsibly, I use them to pay bills and then pay them off before month’s end. This is helpful for a positive credit score, and in many cases, [I] can earn rewards based on the type of credit card used.”