by Wicked_Kitty

Created on: March 17, 2010   Last Updated: March 18, 2010

To ask if credit card companies should be targeting college students is the equivalent of asking if bars should be targeting recovering alcoholics.  The simplistic answer is no, definitely not. 

The reason credit card companies target college students is because they are targeting a young demographic that is reasonably uneducated about how the world of finance works, and who at the same time have a definite need for their product.  Most college students are just starting out and have never had a credit card of their own.  They may for the first time be venturing into a world of self sufficiency and facing managing a budget of their own for the first time. 

The simple fact is that this transition period causes a sense of instability at times, and the easiest way to survive instability is to reach for a safety net.  Enter the credit card safety net.  If the struggling college student is having trouble making ends meet, it's much easier for them to pull out a credit card than it is to figure out how to pinch pennies and restrict their budget.

The problem with this is that as this could potentially be their first line of credit, they are uneducated about how it works.  Sure, everyone knows the simple process. You swipe a credit card and pay it back later with interest.  But being in the world of finance for four years, you soon come to realize how few people have a working understanding of lines of credit.  For example, how many consumers, even in their 40s and 50s can explain to you what an interest rate is derived from?  Ask anyone on the street and you'll find out hardly anyone can explain this, let alone the budding college student.

A credit card works off of a revolving line of credit format.  A limit is established that the card holder can charge up to.  Then based on what that card holder spends, they are charged a periodic finance charge (sometimes simply known as "interest").  The periodic finance charge is based on the card holder's average daily balance for the month, and all periodic finance charges are charged for one month in arrears.  So, what this means is if you get a bill on Dec. 15th, that bill is actually for the interest on the balance you carried from November 1st through the 30th, not for the actual month of December. That way the finance company never cheats themselves out of even one day of interest.

On top of that, the interest rate equation is a little bit more

• 1
• 2
• Next Page >>