It happens fairly frequently …
While reading through a potential Mortgage Applicant’s Credit Report, I’ll discover that many of their reported debts and Credit Cards were first established while they were in college. And now years later, they’re still trying to pay off those debts.
Yes, it’s true. The Credit Card Act (signed into law May 22nd of ’09) is supposed to be addressing some of these issues by removing Credit Card companies … and the temptations they offer to college students for applying for cards … from campuses.
For those under 21, the Credit Card Act has also made it harder to be approved for a Credit Card. A parent, guardian, or spouse must be willing to co-sign on a Card … or the applicant must prove that they have sufficient income to pay for their credit obligation.
These limitations and restraints are helping. But I can tell you from experience, they’re not eliminating the problem. Not by a long shot.
Ask many of my clients. When they were in college or under the age of 21, they probably thought Home Buying was a long way off. Or they might have even thought they weren’t interested in becoming a homeowner.
Whether you’re planning on becoming a future homeowner or not, it’s important to remain financially sound while in college. Having poor credit or large amounts of debt hurts you financially … in the short term and long. Access to services and the cost of those services (think cell phones/service), rent, car insurance, auto loans, and more are impacted by your debt and Credit Scores.
So what are the biggest credit and financial issues I see taking root during the college years of Mortgage Applicants?
- Student Loans: Face it, often they can’t be avoided if someone hopes to go to college. But the amount(s) borrowed can be addressed, as can proper usage of the monies received from these loans.
Students must remember that Student Loans must be paid back and cannot be deferred forever. Think long and hard before your borrow money … for any reason.
- Lack of Budgeting: Learning how to budget and then sticking to a budget is important. Go crazy with your money and Credit Cards now and you’ll be paying for it for a long time after your graduate.
- Making Minimum Monthly Payments: Only making minimum monthly payments on Credit Card(s) raises the cost of the money borrowed because of all the interest charged. Unfortunately, students often do not get the best terms for their Credit Cards. Interest Rates are typically high.
A. Credit Cards are vital to establishing a good credit history, so I’m not advocating that you don’t apply for a card prior to attending college or while there. Just use the card(s) judiciously … and wisely.
B. Pay as much as possible off the balance you owe each month. You’ll save on the interest you’re charged, you’ll pay the balance off sooner, your Credit Scores will build higher, and you’ll be better positioned to buy and borrow for the things you need while still in school … and after you graduate too.
- Applying for too many Credit Cards: Those offers and bargains offered at the store registers can come back to bite you later. Stick to 1 or 2 low-limit Cards and pass on opening more.
- Using the “cash advance” feature on Credit Cards: Do this only when it’s an absolute emergency.
So many of the Credit Reports I see are “haunted” … sometimes for years … by my Borrowers’ past expenditures and the poor credit decisions they made while in college. Don’t let this happen to you (or your child).
Protect your financial future. Establish a budget as part of the college plans you’re making. Apply sparingly for Student Loans and Credit Cards. Stick to your budget. Your financial future will be much better if you do. And should you decide to Buy a Home, you’ll be much better prepared to do so at the best possible terms …