Doctors learn to “first, do no harm.” Maybe universities should come to the same understanding before they start hawking credit cards to students on campus.
Wait a minute. Wasn’t marketing to students supposed to stop after the Credit CARD Act kicked in a few years ago? Yes, but it hasn’t. A study from the University of Houston Law Center found that plenty students are still getting offers in the mail and gifts when they apply for credit. To get around new suitability restrictions, card companies may accept student loans as a source of income. That’s just wrong.
But the worst part may be the misinformation that accompanies the pitches. My jaw dropped when I reviewed marketing material that the student credit union sent my daughter in a bid to get her to apply for a university-branded credit card from Visa. The pitch was built around her need to start building a good credit score, and presumably it was sent to all students at the school who, like my daughter, are past the age of 21 and will graduate this spring. Two nuggets jumped out:
- The material advised her to “carry a low balance” on her card because “this helps your score more than paying off the balance in full each month.” That’s not necessarily true. It’s important to use the card. But you gain nothing by paying interest on a balance. Fully paying every bill in a timely way is a habit that should be encouraged.
- The material also advised, “don’t use more than half your available balance,” which I take to mean don’t tap more than half your credit limit. The problem with this advice is that it is much too generous. You should keep your balance below 30% of your credit limit, and a better target is around 10%.
There is a lot to like in the offer and in similar ones from hundreds of universities that go chiefly to alumni and prospective alumni: no annual fee, a decent fixed-rate for starters (14.99%), and a reasonable late fee ($25). The offer also includes a free look at her credit score and instruction on how to read her credit report. A graduating student could do a lot worse.
And, yes, building credit is important at this point in life. But a university sales pitch that errs on the side of inviting too much debt raises troubling questions. Is the school thinking of my daughter? Or the fees it stands to collect? Universities collectively rake in many millions of dollars through these programs. I’d feel better about that if they were also vigorously promoting sound financial habits—and were a little less willing to bury their graduates under more debt than they may need.