College Students & Credit

University of ArkansasNov. 3, 2009

Bruce Castleberry, Community Outreach Coordinator, CCOA

$ CCOA was formed in 1995. Our mission: to improve the quality of life of individuals and families through financial education, credit and housing counseling, and debt management services.

$ We host hundreds of free seminars each year, and counsel thousands of individuals in three languages, in person or via phone or the Internet. We see about 25,000 people each year.

$ I’m a former Business Editor of newspapers in northwest Arkansas and Dallas, and a Razorback, class of 2008!

Students & Credit Quiz1. Most negative credit information will affect your credit

and can be a part of your credit record for:a) 1 year b) 5 years c) 7-10 years d) Forever

 2. True or False? It doesn’t matter what credit card you

choose because interest rates and fees are about the same from one card to another.

3. True or False? Someone can be denied employment because of having bad credit.

4. True or False? Under federal law, you can obtain a copy of your credit report and credit score for free.

More fun with finances5. True or False? Someone can be denied insurance because of having bad

credit.

6. True or False? If you owe money to your creditors and cannot pay the minimum amount due, as long as you pay something each month on your bills your creditors can’t do anything about it.

7. True or False? If your vehicle is repossessed for not making payments, your credit will be damaged, you’ll have no car, and you might still have to pay on a car that you no longer own.

8. Which fees listed below do many credit card companies charge customers?a) Annual fee. b) Interest charges. c) Over-the-limit fee. d) Late payment fee. e) Cash advance fee. f) Inactivity fee. g) Non-interest bearing account fee.

h) Closing fee. i) all of the above.

Even more fun with finances9. Financial problems can put a considerable amount of stress on

marriages. The percentage of people who divorce in their 20s and cite finances as the top problem is:a) 96 percent. b) 80 percent. c) 48 percent. d) 19 percent

10. You owe $2,500 on a credit card which has a 17 percent APR, and pay only the 2 percent minimum due (your first payment is $50). How long will it take to pay off your card?a) 30 years. b) 9 years. c) 5 years. d) 3 years.

 11. The average undergraduate student has _______ in credit card debt:

a) $688. b) $1,114. c) $1,692. d) $3,173.

12. If a 22-year-old deposits $2,000 in an IRA (Individual Retirement Account), what would that $2,000 grow to by age 67, if it averaged 11 percent annual growth?a) $920,000. b) $220,000. c) $56,000. d) $28,000.

How can you establish credit?• Retail cards• Your bank’s credit card• A secured card • A credit union• Someone co-signs for you• As a secondary borrower on a

joint account

Why Would You Be Denied Credit?• Insufficient income• Insufficient time at your current

address• Insufficient time at your

current job• Little or no credit established• Bad credit• Too much available credit• Too many recent inquiries

Always Read the Fine Print!

• What are the fees?

• What are the penalties and what triggers them?

• What is the A.P.R.?

Credit Scoring: The 5 Main Factors• Just one late payment might lower

your score by 100 points. FICO weighs recent problems more heavilythan mistakes made several years ago.

• The lower your card balances, the higher your FICO score will be. Using 50 percent or more of your available credit is a big score killer!

• FICO scoring is all about how you use credit. Having savings, investment & retirement accounts and making a big salary are good things, but they don’t improve your score (but it will impress a loan officer).

• FICO says closing a credit card account will never help your score and will generally hurt it – especially if you close a card you’ve had for years.

• You don’t lose points off a credit score for getting a copy of your credit report.

Show me the moneyA big money mistake that many college students make:

… is racking up too much debt today because of an overly optimistic outlook of their financial future. College students often overestimate their post-graduate income while underestimating their post-graduate expenses.

 The High Cost of College: Is it financially worth it?

A college graduate’s salary depends upon many factors. One important factor is what field his or her degree is in. For example, a degree in Information Technology is going to pay more than a degree in Social Work. Another important factor is the geographic area you will be working in.Generally speaking, however, a college graduate ends up making ______ dollars more in lifetime earnings than a high school graduate. a) $380,000. b) $650,000. c) $1.3 million. d) $2.5 million.

Fact SheetSource: Sallie Mae, “How Undergraduate Students Use Credit Cards,” April 2009

In this time of credit crunch and economic downturn, college students are relying on credit cards more than ever before. Nearly every indicator measured in spring 2008 showed an increase in credit card usage since the last study was conducted in fall 2004.

• Eighty-four percent of undergraduates had at least one credit card. The average number of cards has grown to 4.6, and half of college students had four or more cards.

• Undergraduates are carrying record-high credit card balances. The average balance grew to $3,173, the highest in the years the study has been conducted. Twenty-one percent of undergraduates had balances of between $3,000 and $7,000, also up from the last study.

By year in college, credit card usage and debt also is increasing across all categories — ownership, average balance, median balance, those carrying any balance, and those carrying high balances.

• Since 2004, students who arrived on campus as freshmen with a credit card already in-hand have increased from 23 percent to 39 percent. • In spring of 2008, only 15 percent of freshmen had a zero balance, down dramatically from 69 percent in the fall of 2004. The median

debt freshmen carried was $939, nearly triple the $373 in 2004. • Seniors graduated with an average credit card debt of more than $4,100, up from $2,900 almost four years ago. Close to one-fifth of

seniors carried balances greater than $7,000.

Nine in 10 undergrads reported paying for direct education expenses with credit cards. • Ninety-two percent of undergraduate credit cardholders charged textbooks, school supplies, or other direct education expenses, up from

85 percent when the study was last conducted, in 2004. • Nearly one-third (30 percent) put tuition on their credit card. • Students who used credit cards to pay for direct education expenses estimated charging $2,200.• Most common education expenses charged: textbooks (76 percent), school supplies (75 percent), and commuter costs (54 percent). • Food (84 percent), clothing (70 percent), and cosmetics (69 percent) ranked at the top of other expenses charged.

Many college students seem to use credit cards to live beyond their means — not just for convenience. • Sixty percent experienced surprise at how high their balance had reached, and 40 percent said they have charged items knowing they

didn’t have the money to pay the bill. • 82 percent carried balances and thus incurred finance charges each month.

Resources• www.annualcreditreport.com

• www.myfico.com

• www.bankrate.com

• www.creditcards.com

• www.CCOAcares.com