Why College Students Don't Need a Credit Card

College students aware of the financial pitfalls that await those with bad credit scores may feel an urgent need to apply for credit cards to start building their scores. Realistically, students could actually end up in a financially dire situation by using credit cards if they’re not careful.

The Credit Card Accountability, Responsibility and Disclosure Act of 2009 (CARD Act) limits credit card companies’ ability to lure college students into debt. Essentially, the CARD Act prevents creditors from offering cards to young adults under the age of 21, unless they show sufficient income. Companies also can no longer send pre-approved offers without expressed permission. This act was passed to protect students from the financial damage that unfettered credit card use could result in.

Despite these protections, many young adults could still end up taking on more debt than they can realistically handle. Most college students don’t need a credit card, here’s why.

Might accumulate difficult to pay a debt

According to WalletHub, a 2018 survey found 57% of undergraduate students said they had a credit card, almost double of the number of students carrying a card in 2013 (30%). This growth can result in higher debt. For instance, CNBC reports the current average credit card debt amongst Gen Z consumers (under age 24) is $2,197.

While student credit card debt declined from 2019 to 2020, it’s still easy to see how debt can potentially snowball. Especially for college students getting ready to find a job in a tough job market due to the effects of the COVID-19 pandemic, along with preparing to start paying off student loans. Credit card debt on top of that may be a huge barrier to establishing a healthy credit score.

Lose out on saving and investing opportunities

Today, e-commerce is so seamless, it’s easy to overspend without realizing what’s happening. Some experts suggest college students avoid credit cards (and overspending), and recommend they instead begin to save and invest early. The outcome is far better than potentially racking up credit card debt. Aside from avoiding high debt, saving early is a good way to establish a foundation of good financial habits in early adulthood. Plus, since they have many years to save, younger people have a higher risk tolerance than older consumers which means they can afford to invest more aggressively.

College students can also consider beginning their university career with a debit card. Using a debit card directly linked to a bank account will help teach important budgeting and money management skills throughout life. Additionally, they can take advantage of discounts with their student IDs.

Achieve a credit score without accumulating debt

Credit cards are not required to build a credit score. For example, Connect offers consumers, including college students, the ability to earn an alternative credit score. Alternative credit scores take into account a borrower's payment habits the three major credit bureaus don't consider. All students have to do is pay their routine bills, such as utility, cell phone, and internet. Doing so will paint a positive portrait of their financial habits. Since alternative credit scores are accepted by creditors and lenders, Connect makes it easy to demonstrate creditworthiness.

If you don't have a credit card, but pay your bills on time, an alternative credit score can enable you to qualify for loans and gain access to credit with more favorable terms. To learn more, contact Connect today.

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