When is the right time to retire a student credit card?
Credit card companies on college campuses are as much a part of the new school year as the homecoming game. But what happens when you graduate and find yourself still carrying that low-limit, high interest student Discover Card or the MTV U Platinum plus Visa? Do you need an "adult" card or will the old one do just fine?
Experts say it's best to keep the college accounts open -- even if you don't use them anymore. No matter whether your credit experience as a teenager was positive or negative, it's best to establish a credit history and even better to keep one or two cards open for a long time.
Student credit cards are big business for companies. Nellie Mae recently reported that 56 percent of undergraduates get their first card at age 18 and 91 percent of students have at least one credit card by their final year. Fifty-six percent of students carry four or more cards. Issuers say that undergrads are believed to be better credit risks than teens and young adults who aren't in college. They also say college accounts breed user loyalty.
"Credit is a good thing and it's a very useful tool that allows us to buy now and pay later," says Gail Cunningham, spokeswoman for the National Foundation of Credit Counseling, a national trade group for credit counselors. "And that's fine as long as later is not too much later. I really would like a student to graduate with a positive credit record because he's going to have a leg up entering the real world, so to speak."
For example, future employers may well check your credit report to see how you handle your finances. Your future landlord -- or mortgage broker -- will also view the credit report, wanting to see if you're responsible enough to snag that lease or loan.
Student cards tend to have high interest rates and low spending limits.
|-- Stephanie Jacobson
Chase Card Service vice president
Sylvie Bryant, 30, of Richton Park, Ill., is one such loyal customer -- sort of. Though she no longer uses her college cards (due to $20,000 in credit bills accumulated during four years at Bradley University), she says that, if used correctly, they could have helped her as an adult. Yet without financial guidance, she used her university MasterCard, Discover Card, American Express, Visa and Marshall Fields cards as free money.
"It didn't hit me until I wanted to buy a house," says Bryant, who was denied a loan years ago, but is now debt free and has sworn off credit cards except in case of an emergency. "I got the financial information I needed long after the fact. By then, I was too scared to even tell my parents."
Bryant's Mastercard is cut in half and filed away in a manila folder marked "paid in full," while the American Express is hidden in a drawer. Both accounts are open but unused. And now that more than seven years has passed since her delinquent payments, her credit report looks as if she's responsibly owned credit cards since she was 17 with nary a late payment.
"Karmic" incentive points and graduation upgrades
Card issuers such as Chase have implemented plans to avoid situations like Bryant's. Chase's Plus 1 card gives students "karmic" incentives to do the right financial thing. For example, when a student pays on time, they get karma points which can be collected and used to get free t-shirts or other incentives.
If you cancel your student credit card after school, it could bring your credit score down.
|-- Ben Linton
Consumer Credit Counseling Service of Greater Atlanta
"The goal is to help them build credit and educate them on responsible credit behavior," says Stephanie Jacobson, vice president of public affairs for Chase Card Services. "So if they go online and take a financial literacy quiz and pass, they receive points."
Chase also offers students a graduation upgrade to those who qualify, she says.
"Upon graduation, we encourage students to speak with a Chase Card adviser to discuss transferring to a more appropriate product based upon their spending and payment needs," says Jacobson.
Student cards more expensive
Student cards tend to have high interest rates and low spending limits. Of the cards included in the weekly CreditCards.com survey, the average student credit card rate has been holding steady at just under 15 percent.
Ben Linton, education program manager for Consumer Credit Counseling Service of Greater Atlanta, says he's found student card APRs that range from an introductory rate of 6 percent to 11 percent. A college graduate with a job and a good credit history might qualify for a better interest rate on a different card, Linton says. So, he says, if you are carrying a balance at a high rate of interest, then it's OK to transfer to a low-rate card as long as you read the fine print.
Many cards charge a balance transfer fee that is, on average, about 3 percent of the total purchase. It's even better if you can find one with no transfer fees, however.
"The fewer fees you have to pay the better off you'll be," says Linton, who adds that once you transfer a balance you should not make any new purchases on that card until the balance is paid off. (Otherwise you likely will be smacked with a higher interest rate on the secondary amount.)
The bottom line, he says, is that it's OK to shop around for a better card.
Four years of beer and pizza at 21 percent APR
No matter how angry you get at yourself for having bought $10,000 in beer and pizza at 21 percent interest, don't cancel the college accounts after you transfer the balance to a lower rate card.
"Just put it to the side in a safe place," says Linton. "You should keep it because keeping it is building credit history, good or bad. One of the things they look at for your credit score is how long you've had the cards open. If you cancel it after school it could bring the credit score down."
- Do's and don'ts when giving teens their first credit card – Decide whether it's time, then help your teens use cards wisely, and put checks in place if they don't ...
- Q&A: Leah Ingram on college costs and credit – Author Leah Ingram and her husband got their credit in shape before taking out loans to send their daughters to college ...
- Sending kids off to college with a rewards credit card – Sending your kids off to college using a rewards credit card can help you earn rewards points while teaching your kid how to be financially responsible ...