Credit now; problems later
by John Pullen, reporter

    Many students have credit problems because credit card companies love college students and send them many appealing applications, a credit counselor said last week.

   Sherry Inman, Consumer Credit Counseling Service (CCCS), explained how credit card companies make money off of college students, how credit information is gathered and used and how to avoid credit problems last week on NE Campus.

   Inman said many people have the same problems: too many credit cards, too much debt and insufficient credit history.

   “Someone always asks, ‘How can I improve my credit?’” she said.

   The answer she supplied was “smart money decisions and time.”

   True redemption cannot be quickly gained in the world of credit, Inman said. It is a system of trust in which the trustworthy may be punished simply because it is impossible to tell them from the untrustworthy.

   Money availability can be the problem in many cases.

   “Teenagers and college students have more to spend than every other age group,” she said.

   Inman said older age groups tie up their money in mortgages, car payments, house payments and other large long-term investments. The younger generation, fresh out of home, heady with freedom and action, is a credit company’s dream.

   Credit card companies capitalize on that attitude. Young people are deluged with credit applications with options for school colors, class year on the front and high limits. Making promises and showing excellent rates in large bold letters and colorful banners, Inman said, the companies hope that the debtor-to-be does not look at the back page and read the long paragraphs of legally required terms of agreement.

   Most everyone has seen the ploy in one form or another. For example, a BMG Visa for students promises $20,000 credit limits, 3.9 percent annual percentage rates, instant cash and free merchandise.

   Inman helped pull the audience’s attention closer to the document, specifically pointing out the annual percentage rate (APR).

   All credit card APRs listed on the front are an introductory rate. The true rate, usually somewhere around 17 percent, kicks in about 90 days after the date of membership, Inman said. So members get 17 percent interest on any balance on the card, whether any purchases are made on the card that month or not.

   “At 17 percent, a $1,000 purchase, paying out the minimum payment, normally about $10 a month, takes 12 years and ends up costing around $1,979. That’s almost $2000 dollars for a $1,000 dollar initial purchase,” she said.

   But if the debtor pays not only the minimum but $25 more, it would take two years and around $1,240 to pay the balance off.

   If something comes up and suddenly a payment is missed or late or too little, the credit company classifies the debtor as a risk, charges all manner of punishment fees and increases the interest rate to 25 percent, Inman said.

   Inman urged students to read all the fine print.

   “Don’t be afraid to call for clarification,” she said. “They want your business; they’ll explain anything you have a question about.”

   Inman said those thinking of going through life without a credit card should remember that the entire consumer world revolves around credit. Credit cards are the primary way to get credit, and most people need credit at some point.

   Houses, cars, computers, apartments .. anything that requires large amounts of money and trust, takes credit to get, Inman said.

   Currently, it is easy for a company to get a full credit report on anyone. Virtually any person over the age of 18 has a credit report of some kind, even if it includes just names and addresses.

   “I’ve even seen a 15 year old with one,” she said.

   A credit report is public information a person has given to companies or the government. It contains all known names, nicknames, previous addresses, work history … and that amounts to only half of the available data, Inman said.

   Most salespeople, however, are concerned with the payment history section, which contains open accounts. All current cards, savings accounts, insurance accounts and standing debts are included. It may also include credit cards that are paid off, but have not been actively closed at the person’s request.

   “You have to call up and state that you want the account closed. Sometimes it’s required to be done in writing,” she said.

   This section also tells the status or standing of each account: good or bad depending on problems.

   Other information concerns closed accounts, which can be listed for years before they disappear.

   Inman said good accounts disappear after two years; accounts that were ever in bad standing stay for seven years. Two stay forever: problems with the IRS and problems with student loans.

   “You don’t want them [the IRS] to get acquainted with you,” she said.
Student loans are government loans, so if a person ignores them or misses payments, the problem stays with the report for as long as that person is alive and can lead to serious repercussions, Inman said.

   “In Texas, only three institutions can garnish wages: the IRS, child support collectors and student loans,” she said.

   Companies deciding whether to give credit look at this report. Each time a company asks about a person’s rating, it generates a visible inquiry. If a person goes to 20 places shopping for a car and gives out his information at each, it generates 20 inquiries.

   If that person then goes to buy a TV, the salespeople might turn him down because so many inquiries into the individual’s credit report look suspicious. Even if the company does grant credit to the individual, it may charge him a higher rate.

   Car companies, apartments and virtually anyone who asks for information and a signature may inquire into a person’s credit history, Inman said. A car company can even obtain information from a driver’s license if someone takes a test drive.

   Inman explained that such actions can be done, legally, without permission.

   “Prospective employers are the only ones legally obligated to ask permission before checking credit history,” she said.