College Students: Good With Credit Cards, But Not Credit-Smart

Survey Shows Responsible Behavior but Some Misunderstanding

College Students: Good With Credit Cards, But Not Credit-Smart
May 5, 2017

How do you think today's college students (aka Generation Z) handle credit? Have they learned from Millennials, who were severely affected by the Great Recession, or are they taking a more relaxed approach toward controlling credit and debt? A survey from Equifax implies that while college students are approaching credit with relative caution and responsibility, they could benefit from further education on the subject.

The survey polled 600 students from the ages of 18 to 24, the prime age to start building your credit. Sean McQuay, Credit and Banking Expert at NerdWallet, suggests that students should look early for advantageous cards such as "student credit cards or a secured card so you can begin building that credit from a young age." By the time the temptations of collegiate life roll around, you will have some experience with responsible credit.

Whether helped by previous experience or not, college students seem to understand the importance of having a credit card and using it responsibly to build a solid credit score. While nearly 70% of students in the survey had at least one credit card, 72% of those with credit cards paid off all the balances each month, and another 18% had their bills paid off by their parents (arguably less responsible, but at least the bill is paid). Only 10% carried monthly balances, and 59% of those respondents had a plan to pay off the balance within a year.

Perhaps they have taken the advice of Millennial Money Expert Stefanie O'Connell, who says, "Having a low credit score can really put a hamper on accomplishing certain goals, like trying to move out and get your own place." O'Connell summarizes the landlord thought process: "Have you paid your credit card bills on time? If so, then you will probably pay the rent on time."

Students also understand that credit scores are important, but they do not always realize what affects them. Many survey respondents correctly identified factors that do affect credit scores, such as paying bills on time (73%), amount of credit card and loan debt (66%), the types of credit cards and loans (59%), the length of credit history (55%), and opening a new credit account (51%). However, many also incorrectly identified factors that have no effect on your credit score, including denial of credit (40%), interest rates of your credit cards/loans (37%), checking your credit report (22%), credit counseling (14%) — even changes in hourly pay (11%), driving records (10%), and gender (2%). In addition, fewer than half (43%) had ever bothered to check their credit scores! You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.

Melanie Wing, Equifax's Vice President of Customer Insights, points out that Equifax sees a teaching moment in this survey. "We saw this survey as the beginning of a unique opportunity Equifax has to help Generation Z understand how credit works, and the long-term impact it can have with life milestones," says Wing, adding that ongoing education about credit is a key to future positive credit experiences.

Overall, the Equifax survey shows that college students appear to be trending toward responsible behavior. For those who are not, we offer the advice of Jocelyn Paonita, Founder of The Scholarship System: "You really need to be disciplined if you're going to take out a credit card ... a lot of students, they get this card and they look at it like free money, but that's just not the case."

In essence: never charge any more than you can pay off at the end of the month and stick to a budget to help you keep that goal. Only carry a balance in emergency situations, and have a plan to pay off any debt that you incur as quickly as possible. Save your debt capacity for more meaningful purposes down the road.

You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips. And if you want to learn more about credit, download our free eBook, Give Yourself Credit.

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Carla | 05.05.17 @ 16:39
Oh what I would have given to have been more educated when I was younger on the value of having a good credit score. I had no idea the impact it would have on my future. I am an absolute believer in educating the younger generation to be financially responsible.
Chrisitna | 05.05.17 @ 18:58
I wish I had known more about the importance of maintaining good credit when I was younger. I've made sure both my kids are more prepared and knowledgeable!
Zanna | 05.06.17 @ 01:38
This is exactly what we're talking with our college kids about! we're trying to develop those good financial habits, carefully. Credit can be a dangerously easy trap for people who don't know how to handle it.
$commenter.renderDisplayableName() | 12.05.20 @ 18:23