College students struggle to establish credit

By Charlotte Norsworthy, University of Georgia

JT Cavalenes was recently denied for his first credit card. He’s a freshman at Kennesaw State University and decided to apply for a credit card after his parents advised him to start planning for his future.

“It’s a lot more necessary to already have [established credit] when you’re out of college than while you’re in it, so already having it built up is helpful,” said Cavalenes, a mechanical engineering major.

Cavalenes said he intended to use his credit card for gas and online purchases to better protect himself from fraud and identity theft. But to his surprise, he said, his application for a student credit card was not approved.

“They turned me down because I didn’t have a steady income, like a job,” he said. “Now, I’m not really sure yet what to do. I’ll have to talk it out with my parents and see what they recommend.”

Getting turned down for a credit card for lack of steady income is common, said Michael Thomas, a financial planning professor at the College of Family and Consumer Sciences at the University of Georgia.

“To establish creditworthiness you have to be able to borrow money and pay it back,” he said. “So, if you’re in a position where you don’t have substantial income coming in, that’s a huge risk for the credit card issuer because they’re in the business of making money.”

Thomas said because students are often in a position of being unable to show proof of income, one alternative to traditional credit card accounts are secured cards. Secured cards are credit cards issued by a bank, but the credit line is determined by how much money the student can deposit when they set up the account.

“It can be a $250 secured credit card, a $500 or $1,000 secured credit card,” he said. “But you have to put the deposit down for that amount, so that in the event that something happens, you already have money set aside with the bank to recoup that money.”

From there, Thomas said typically after three to six months of demonstrating good payment history, the banking institution will offer or allow the user to set up a traditional credit card account.

Another option for students looking to establish credit is becoming an authorized user on a parent or relative’s credit card account.

“What happens is that their credit history or payment history for that particular card, it could potentially show up on your credit report and actually bolster your credit score,” Thomas said. “It also gives you access to a credit line and which you can learn how to use credit responsibly.”

For students looking to pitch this authorized user idea to their parent or relative, Thomas recommends filling them in on the protections they have on their credit card account. Account owners can dictate spending limits or even set up alerts when an authorized user uses their credit card.

“Those individuals actually have a lot of control with regard to how the authorized users can actually use the account,” he said. “So that’s the misnomer there. People don’t think that they have that. But they do.”

Charlotte Norsworthy is a student at the University of Georgia pursing a master’s degree in journalism.

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