If you have or are a young adult who recently left for college, your last advice to her may have included a caution to take good care of her credit rating. You’ve stressed how important it is to develop financial responsibility and maintain a good credit rating. You may have helped her apply for her first credit card and gotten a little misty with pride when you saw that slice of plastic spending power in her hand.
Credit is easy for college students to get. Many companies have a policy of handing credit cards early to anyone who is enrolled as a full-time student. It’s just as easy to use credit, with everything from bars to vending machines on and off campus accepting plastic as readily as cash. In fact, at some schools, students get a nice discount by swiping their student identification cards instead of inserting cash. The cards are linked to an account that can be filled easily using a credit card.
Not long ago, overspending resulted in the need for a humiliating call home for a bailout. Today, a student can create her own bailout using credit cards as emergency funding. Often, the result is graduates with good credit scores and high credit card debt. Sometimes, the result is graduates with wrecked credit scores. According to Sallie Mae, eighty-four percent of students population have credit cards and only two percent of college undergraduates were without any credit history at all.
Increasingly, critics are charging that credit is too readily available to college students and that many young people don’t realize what is at stake when they use them. Most of the criticism centers on the amount of credit college students have and their irresponsible use of it. Few people question the premise that a college student needs credit. Conventional wisdom would have it that everyone needs to get credit and use it.
Perhaps it is time to begin to question the assumption that maintaining credit is a necessary part of financial management. Certainly, most people want to take out a mortgage on a home, eventually, and many people want to use credit to achieve other goals. Credit is so common, and so accepted in today’s world, that people forget that credit is expensive. When you accept a loan, what you are doing is renting money.
Rental is usually only cost-effective when it is used on a short-term basis. It’s better to rent a jackhammer than to buy one if you don’t think you’ll ever need it again. Renting a pillow would be insane. Nearly everyone would agree that you would be better off to make do with a rolled up sweater until you could save the cash to buy an inexpensive pillow, then make do with that until you could afford a nice down model.
Hardly anyone ever suggests that you take the bus until you save enough to buy a “clunker” and then drive that until you have enough for a late-model sedan, but the reasoning is just as sound. For three generations, Americans have accepted the questionable wisdom of living beyond their means. Perhaps it’s time for the next generation to rebel against the credit-loving lifestyle of their parents.
Sara Woods, of ppiclaims.org.uk, is the author of this article. Are you a victim of being mis-sold payment protection insurance on your credit card? Visit us for more information regarding your legal rights.