Risks determine rates
Alan ReiningerAlan Reininger
Issue date: 4/7/05 Section: Indepth
Credit card contracts can be confusing, and if students aren't careful, they might find themselves wallowing in debt.
Credit cards can help students build credit, but students need to handle them with caution, said Tandy Murphy, senior vice president of the Bank of Kirksville.
Murphy said students should treat their credit cards like a snake - hold it so it won't bite.
"If you don't pay those bills on time, or use it too much or just make the minimum payment, you are really holding the snake by the tail at that point," Murphy said. "It's controlling you. You're not controlling it."
Murphy said the ideal situation with a credit card is to repay the entire debt on the card every month if possible. He said if a consumer pays the debt, high interest rates will not be a problem.
Senior Robin Jones said she obtained her card from a bank, and the employee explained the card's special student terms to her. She said the main reason she applied for the credit card was to build her credit score and only charge what she could pay off at the end of the month.
"It has a lot lower of a limit then normal cards, but the rates are a lot better as a student than as an adult," Jones said.
Murphy also advises finding a card without an annual fee and the lowest rates possible. Murphy said an annual fee is money paid to simply own the credit card. He also said he advises against paying only the minimum balance every month because the customer will pay off that purchase for several years, and it is possible to pay more than double the original purchase cost.
"... The faster you pay it off, the better," Murphy said. "When you pay it off, it's a revolving line of credit. You can use that money again for future purchases."
Murphy said some credit card companies typically base their interest rate on the prime rate, which is tied to the federal rate. The current prime rate is 5.75, and most credit card companies add an average of 5 to 10 percentage points to that rate, Murphy said.
"It doesn't matter what the interest rate is if you retire that debt on a monthly basis," Murphy said. "You get to use that money for free."
Murphy said students should examine the fine print on their credit card applications. This is where companies define specific situations when they can change a customer's interest rate. For example, customers can face a penalty clause adjusted to their rate if they spend past their credit limit, Murphy said.
He also said some companies reserve the right to adjust a customer's interest rate if he or she mishandles another credit card. He said if a person has a late payment or spends past his or her credit limit, the company will charge a higher interest rate and will lower the credit score on his or her credit report.
"The main thing is to pay that card on time," Murphy said. "Take care of it, and it will take care of you, and then you will build you credit score."
Murphy said if students don't understand the terms in the fine print on the credit card application to call that company's customer service department.
"I think it's important that one understands all of the terms' pitfalls and policies before you apply for that card because they do vary," Murphy said.
Roberta Santee, branch manager of U.S. Bank, located at 202 E. McPherson in Kirksville, said to look for a reputable company. She said students should opt for a credit card with benefits most relevant to them.
"If you don't want travel awards, don't pay for travel awards," Santee said.
Santee said each credit card company determines the interest rates, terms and credit lines for each individual. Santee said a person's credit score determines what his or her rate will be. She said students without a previous credit history have higher interest rates because they pose a potential risk for the company to lose money and because of their inexperience. She said companies adjust the interest rate to offset the risk of loss.
Santee said if a student doesn't have a credit card, U.S. Bank checks students' checking account before issuing a card. She said irresponsible handling of the checking account usually foreshadows potential risks. She also said students generally do not have a high credit line for their first credit card because they do not need it.
Santee said she recommends students apply for a credit card with a major company because they generally are accepted everywhere.
"As a student just starting out, I would not recommend more then a couple credit cards," Santee said. "One for emergencies and maybe a gas card. But you just want to be careful that you don't get into a debt situation you can't handle."
Santee said if students wish to cancel a credit card, they have to call the company. She said cutting up the card does not cancel the account.
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Credit cards can help students build credit, but students need to handle them with caution, said Tandy Murphy, senior vice president of the Bank of Kirksville.
Murphy said students should treat their credit cards like a snake - hold it so it won't bite.
"If you don't pay those bills on time, or use it too much or just make the minimum payment, you are really holding the snake by the tail at that point," Murphy said. "It's controlling you. You're not controlling it."
Murphy said the ideal situation with a credit card is to repay the entire debt on the card every month if possible. He said if a consumer pays the debt, high interest rates will not be a problem.
Senior Robin Jones said she obtained her card from a bank, and the employee explained the card's special student terms to her. She said the main reason she applied for the credit card was to build her credit score and only charge what she could pay off at the end of the month.
"It has a lot lower of a limit then normal cards, but the rates are a lot better as a student than as an adult," Jones said.
Murphy also advises finding a card without an annual fee and the lowest rates possible. Murphy said an annual fee is money paid to simply own the credit card. He also said he advises against paying only the minimum balance every month because the customer will pay off that purchase for several years, and it is possible to pay more than double the original purchase cost.
"... The faster you pay it off, the better," Murphy said. "When you pay it off, it's a revolving line of credit. You can use that money again for future purchases."
Murphy said some credit card companies typically base their interest rate on the prime rate, which is tied to the federal rate. The current prime rate is 5.75, and most credit card companies add an average of 5 to 10 percentage points to that rate, Murphy said.
"It doesn't matter what the interest rate is if you retire that debt on a monthly basis," Murphy said. "You get to use that money for free."
Murphy said students should examine the fine print on their credit card applications. This is where companies define specific situations when they can change a customer's interest rate. For example, customers can face a penalty clause adjusted to their rate if they spend past their credit limit, Murphy said.
He also said some companies reserve the right to adjust a customer's interest rate if he or she mishandles another credit card. He said if a person has a late payment or spends past his or her credit limit, the company will charge a higher interest rate and will lower the credit score on his or her credit report.
"The main thing is to pay that card on time," Murphy said. "Take care of it, and it will take care of you, and then you will build you credit score."
Murphy said if students don't understand the terms in the fine print on the credit card application to call that company's customer service department.
"I think it's important that one understands all of the terms' pitfalls and policies before you apply for that card because they do vary," Murphy said.
Roberta Santee, branch manager of U.S. Bank, located at 202 E. McPherson in Kirksville, said to look for a reputable company. She said students should opt for a credit card with benefits most relevant to them.
"If you don't want travel awards, don't pay for travel awards," Santee said.
Santee said each credit card company determines the interest rates, terms and credit lines for each individual. Santee said a person's credit score determines what his or her rate will be. She said students without a previous credit history have higher interest rates because they pose a potential risk for the company to lose money and because of their inexperience. She said companies adjust the interest rate to offset the risk of loss.
Santee said if a student doesn't have a credit card, U.S. Bank checks students' checking account before issuing a card. She said irresponsible handling of the checking account usually foreshadows potential risks. She also said students generally do not have a high credit line for their first credit card because they do not need it.
Santee said she recommends students apply for a credit card with a major company because they generally are accepted everywhere.
"As a student just starting out, I would not recommend more then a couple credit cards," Santee said. "One for emergencies and maybe a gas card. But you just want to be careful that you don't get into a debt situation you can't handle."
Santee said if students wish to cancel a credit card, they have to call the company. She said cutting up the card does not cancel the account.