oA the university daily kansan
debt & credit
thursday,april1,2004
--and how hard it is to rise out of it, and how bad credit can plague students for years.
StudentUniverse.com
1009 Mass.
Photo illustration by Kit Leffler/Kansan
CREDIT: Debt repayment does not mean the end of credit problems
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A poor credit report can hurt students when applying for a car or house loan, obtaining a cell phone, getting insurance, interviewing for a job and even applying for law school.
"The hardest thing for a student is figuring out where you'll be in 5 years," said Jeff Sizemore, personal banker at USBank, 1600 E. 23rd St. He added that the worst trouble students run into is not paying the monthly statement on time or at all.
Delinquency on credit card payments was how Shaughnessy's debt got so high to begin with.
As a freshman, Shaughnessy was enticed by free prizes offered by credit card solicitors on campus.
He signed up for several credit cards thinking he would not receive any of them based on his low income listed on the application.
Shaughnessy said he actually hoped he would not receive any; his parents had warned him of the dangers of credit cards and insisted he not get one.
But a credit card arrived in the mail. He originally planned to use it as money for emergencies but began making occasional purchases, such as a pair of shoes.
It worked out the first several months because the small monthly payments were manageable.
Towards the end of his freshman year and throughout his sophomore year, Shaughnessy began using the card for more than just shoes. Small shoe charges had turned into clothing purchases when he did not want to do laundry, then came expensive stereos to replace old ones. Before long, the payments were not as easy to make and carried over and accrued interest.
"The next thing I know, I've got a $5,000 balance and I wasn't making payments." Shaugh-
nessy said.
While his debt increased, his credit score decreased because of late payments and an inflating balance.
Credit is simply the ability to repay a loan, Sizemore explained. Students develop a credit history by borrowing money with credit cards.
Many students don't understand percentage rates, interest and fees that often add more costs to unsuspecting customers, said Robert Baker of Housing and Credit Counseling, 2518 Ridge Court.
The system seems simple, but students often charge more than they realize because they don't understand the hidden costs of credit cards. Sizemore said.
People can always think of reasons why they cannot pay the bill on time, but when it comes to a credit score, there is little subjectivity in computing it.
Loan officers and other moneylenders usually look at a credit score, also called a FICO score, when determining the ability of a borrower to repay the loan. FICO scores are determined by a
person's payment history over a length of time.
This makes a student's credit score especially precarious considering students have short payment histories.
Baker said more than 9 billion credit card offers are sent through the mail every year. Additional solicitations find their way to students easily through e-mail, Baker said. Students should seek help at the first sign of trouble with a collector. Baker said future problems can easily be avoided once a student understands the situation at hand.
Baker said getting out of debt is never quick and easy.
"You didn't get in debt in 10 minutes; you're not getting out of debt in 10 minutes," Baker said.
Shaughnessy's debt took about a year and a half to get into debt, and it subsequently took about another year and a half to get out.
Shaughnessy worked 70 to 80 hours a week, alternating between a lumber yard by day and stocking groceries at night. His work schedule left little time for hanging out with friends or
Photo illustration by Megan True/Kansan doing much else.
"It made me think a little bit as far as appreciating school and getting a job," Shaughnessy said. "You couldn't be a kid, you had to be an adult."
His friends allowed him to live with them rent-free while he got his money together.
He made $300 weekly payments, but the debt was still difficult to overcome with a 22 percent interest rate and a $30 fee added to his balance each time he didn't pay his bills on time or at all.
"For a young person, it's just one late payment," said Rich Cook, affiliate manager of Free State Credit Union, 1001 E 23rd St. "Young people can get screwed with only one negative mark."
When a person has several late payments and unpaid balances, credit agencies turn the debt over to third-party collection agencies, which can file lawsuits against the delinquent borrower.
Once a debt-ridden student contacts a legal representative such as KU Legal Services for Students or an attorney,
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