Socha: Students lack financial education

I distinctly remember a conversation I had with a friend about financial ideas in which we disagreed which corporations reported to the credit companies and whether or not credit scores meant much in today’s society.

I was shocked by my friend’s lack of understanding, but after some reflection, I realized not all people my age think the way I do. Not everyone is concerned or educated about their credit scores or income-to-debt ratio; not everyone makes it a priority to pay their bills on time, if not early, every month. Ultimately, my friend needs to change and fast.

In a recent survey conducted by Sallie Mae, a student loan company, 39 percent of incoming freshmen are arriving at college with a credit card already in-hand. By the end of their college career, they on average will amass over $2,200 in credit card debt, even with making monthly payments. What’s even more revealing is that 84 percent of undergrads have a credit card and more than half of college students nationwide have four or more credit cards.

Cardholders, balances and late payment occurrences are increasing, and with higher rates of tuition, students are getting deeper into debt every year. Students cannot expect their future to be financially sound if they cannot manage their accounts properly.

So what kind of impact can this credit card explosion have on personal scores? While it’s beneficial to have them on a personal credit history, as they increase in credit worthiness and overall score if they have low balances, they can also negatively affect credit scores if the balances are too high. The score can also be affected negatively by late payments, too many inquiries such as applications for another credit card or loan and a shorter credit history.

Lower scores mean fewer companies will offer new members cards or loans, and the companies that do come with higher interest rates.  Cell phone companies, though, don’t report to the credit agencies, but check your score to see if you qualify for a line of business with or without a deposit. When you decide to buy a house, you will more than likely finance the home which requires good credit or you may be denied the loan.

With so many factors that can negatively affect credit scores, some people believe they would rather stay out of the credit score game and not have any credit at all. Unfortunately, creditors view an absence of credit as an account with more risk than those with bad credit. Those with no history do not allow a baseline for credit companies to predict what cardholders will do with the allotment.

So what is the proper approach to this? Get a personalized credit report and look it over carefully. Anything that looks odd or wrong needs to be addressed and fixed as quickly as possible. Next, take a good look at the amount of debt and set limits, including a stopping point for card utilization. Companies recommend keeping balances below 50 percent to allow for emergency situations to be taken care of and keep your score up. In the instance of multiple cards, figure out which card has the highest interest rate and pay it off first. Lastly, if the credit score is not where it should be, devise a realistic plan of action to remedy this.

Additionally, I will offer this one last piece of advice: make personal payments as much as possible. It’s a personal score, not the score of an individual’s parents. It is something that will live with an individual for the rest of their life. College is supposed to prepare students for the real world, so think of this as an investment for the future. It may not be easy but it is definitely worth it.