Trial Credit Card for American Students - Essay Example

Trial Credit Card The "trial credit card" will target all college in the United s. The most viable age group, though, would be college students under the age of 21 who would be interested in building their credit score before they graduate. Returning students over the age of 21 can also give it a try if they want to increase their credit score. There is a large proportion of potential customers for credit cards whose only limitation is age. Customizing a credit card for students below 21 years will afford them a chance to cultivate a credit history, which can later enable them borrow higher amounts. This would come in handy after college when the person requires purchasing a car to facilitate job seeking. Currently, young people below 21 years are not allowed to have cards under their names (Wood 159). Maintaining the account requires no fees and so we expect to have as many students as possible enroll in the program. We will mentor and train new students on the basics till they are able to manage their accounts. We understand that students have needs, and do not always have to rush to their parents for cash. Providing a customized card service for college students will act as a channel for mentorship into being more responsible citizens. If a student controls debt and maintains spending within allowed limit, it means that the student values the relationship and can be trusted with more credit (Scott 152). The young audience in college would boost the profitability of this idea, considering that they would be able to get good-sized loans to buy cars or houses once they complete college. A delightful credit score has much advantage when one completes college. Credit cards allow a person to afford what they cannot buy at the time. This comes in handy in situations requiring extra spending or when a necessary item is required, but there is no buying power (Ulzheimer 163). Parents would also be interested in contributing to help their sons and daughters in building good credit, making the idea terrific for students and parents. At the same time, the idea will help parents by shouldering their burden since they will not require being responsible for all requirements of their children. There is considerable demand for credit cards in the country as many people attempt to live a good life. The average American credit card debt per borrower is $4,996. Experts project that this figure will rise due to the current difficult economic times (Credit Card n.p). Scarcity of jobs causes a good section of the country’s workforce to live beyond their means. Many live hand to mouth with little to save; yet there the economy places many demands upon individuals in society. There exists a desire to drive the best car, wear decent clothes and adorn oneself with the trendiest fashion. The urge to keep up causes many to forget saving and spend much more than they may earn in the real sense. With this in mind, credit cards have become part and parcel of nearly all of the American households. In the same fashion, the college student faces this dilemma and finds it imperative to start working on their credit scores so that they are able to access car loans and to have less mortgage debt repayment charges. The problem is that banks consider anyone with a bank account as an adult instead of treating different groups with the uniqueness they require. All segments of the population have different needs. Most college students just work hard to get by and use little while at school. They may not have enough money to pay for high credit card charges. Coping with high interest rates just like the working class is unfair for the college student. Most college students earn little due to the limitation of time between school and work. They are, therefore, disadvantaged when denied credit. It is because of these reasons that a “trial” credit card would be necessary for the college student. It would offer the student a small amount of credit, starting at about $200, and it would be possible to scale up or down the credit offer based on the level of commitment to repayment, timeliness and diligence of the cardholder. The student with the intent of obtaining a trial credit card will come to the bank and provide proof of college enrollment, including transcripts and a letter from the dean. After presenting the above requirements, an attendant will take time to explain the benefits of having the trial credit card. The account opener also elaborates the terms and conditions of credit as well as applicant’s role. Since the package targets students in college, a proof to the same effect will be required. Supporting documents will include the college ID, academic documents and guarantor information. A guarantor may be a parent, guardian or a working friend. Students under 21 that have a guarantor who could be a parent, guardian, spouse or friend above 21, will receive all the benefits of any other student. Provided that the students can prove they have steady sources of income to cover the credit obligation, our company will enroll them in our trial program. The program will closely adhere to the Credit CARD Act of 2009 to avoid any losses in case of default (Bailey, Gerry, and Felicia 30). The credit card balance is due every month, and the agreement will expect that the students plan accordingly in order to meet this obligation. Default automatically lowers the credit card score. Students under 21 years of age will not pose a serious problem since they have to meet the criteria in the Credit CARD Act. Meeting the standard means that they exhibit ability to meet the credit card obligations, personally or with friends and/or family support. All students have to enrolled in college and provide proof before they receive a trial credit card. The students will require their parents to sign as guarantors (Scott 159). We will append the student’s next of kin’s debit or credit card in the case of extreme delay in repayment of the debt. The guarantors account will pay for the defaulted amount after notifying them. This applies to the students under 21. We will also require the student’s Social Security Number, family details, as well as a parents consent to assist in repayment in case of accidental, natural death, or whatever event that might cause defaulting. Currently, banks do not have services tailored to the needs of the students who are usually busy in improving their grades rather than worry about getting a mortgage or buying houses. Their rates, charges and numerous obligations do not suit the countless demands placed upon the busy student. The Credit card seeks to bridge that gap. It will provide a student with a better learning atmosphere by taking away the worry of lacking some necessities. In addition, the card will not require maintenance cost. This is due to the understanding that students operate on shoestring budgets. Most credit card programs do not have a reasonable upper limit that is closely monitored based on the credit score. Lack of limits leads to overspending and leads to poor performance in terms of profitability. The good thing with our system is that there is a limit. Since the limit is low, once a student reaches the credit limit, the credit card will be deactivated until credit is repaid. Companies all over the US are on a quest for young customers to carry on their brands. The most utilized approach for attracting young people is through branding. Young people like fancy and trendy things. The clothing and textile industries have successfully managed to create a niche of young consumers. Through intensive research and development, the companies are able to come up with trendy designs within a short duration. This way, they always have a new selling design to cover young adults whose preferences are constantly changing. Most banks have a difficult time getting customers to repay loans once they have lost their jobs. The good thing with the trial system is the fact that; we will not have a high risk and the low credit that we advance to the college students are easily repayable within a month or a few weeks. In case of default, we simply charge the parents credit card or debit card at an agreed upon time. A parent who agrees to be his or her child’s guarantor has much trust in the student. In case of default, the parent or guarantor would have a greater influence on the student in making them repay, rather than coercion or litigation. Since the credit card idea is a trial, it will provide a chance to attest the viability. Lack of repayment would be a prime concern in the credit services industry. Dealing with a college student through litigation would not be our option, but we would consider having the parent’s credit card details for ease of recovery of credit advanced to the student. Overspending is a problem in credit cards with an unreasonable limit (Borushek 74). This trial credit card will have an upper limit that is gradually raised based on the student’s performance in repaying the debt. In the case of default in repayment, we will freeze the credit card with immediate effect after notifying the student, about a week after the due date of payment. These restrictions placed upon the students may seem tough, but they aim at ensuring that the student learns to be responsible at an early age. After account closure, the student will be allowed a month to repay, and if this is not done, the parent’s credit card will have to be charged. The defaulter receives a negative score in credit. Since the student’s main goal on getting on this program is to have good credit score, it is expected that the student will work hard to have the debt fully repaid. A student’s high overall GPA may not necessarily qualify a person to receive a credit card with a higher limit. Many learned people fall in the category of poor spenders. On the other hand, we have averagely educated, or poorly educated students who are extremely good managers of money. This implies a lack of correlation between the GPA and a students ability to repay credit card debt. While we may encourage the student to study much more and have good GPA so that they can access higher limit on the credit, we have to remember that numbers speak louder than Grade Point Averages when it comes to the financial services industry. A good GPA coupled with a strong credit card score gives a good basis to award greater credit. The GPA will only act as a motivator for other students to enhance their school performance. Some may contend that a good GPA reflects an individual’s capacity to obtain a job. However, this is not the true picture. Performing well in school might lack correlation to credit worthiness. It is, however, appropriate to offer young adults a chance to prove themselves by advancing them low limits of credit. If they prove worthy of greater credit by their good efforts in repayment, they will receive greater credit even as they advance to masters or proceed with their career. This line of credit will be available to them only during college after which they can enroll to normal tariffs of credit cards. At this point, they receive a general credit card, but they maintain their good or poor credit card score based on their performance on the student trial credit card. Coordinating with the school authority in order to verify or request for a student’s academic performance would not be an easy task. For this part of the process, we expect the parents to present verified letters or documents from the institutions every quarter or semester that the student is enrolled. Most schools have a system in which students can print proof of enrollment; this document will be acceptable as well. Transcripts will be presented to the bank regularly. The competition put up by regular banks is bearable, since most banks do not have attractive credit card programs to suit the student’s needs. It is easy to enroll on the trial credit card program. There are no maintenance fees charged, and the program offers low interest rates on credit. These factors, as well as those mentioned above, indicate that we have little competition from banks since they do not have such customized channels to enable college students build their credit card score. The table below shows that students’ loans remain low. This presents an opportunity for growth worth pursuing. The Federal Reserve Bank New York released information indicating that the student loans are projected to keep rising. A trial credit card would be ideal for these millions of students mostly in college. In addition to offering them credit, we will be providing them with an excellent way to achieve solid credit card scores prior to graduation. According to a Federal Reserve Survey of Consumer Finances, statistics indicate that 76% of undergraduate students have credit cards. The average debt per college student is a staggering $2,200! This amount is quite high, and the trial credit card system will regulate this amount to enable college students learn to save money and spend sparingly within a comfortable limit (Credit Cards n.p). The favorable factor is that the bank does not need much capital to begin running this program. The main cost would be advertisement costs. The bank will also need to invest time for customer education. The idea of a trial credit card would profit many college students who have a hard time building their credit card score. Once this program is running, we will have millions of college students building their credit card score without spending much time worrying. Students will have enough time to invest in their studies while we help them get ahead financially. After graduation, these students will be empowered to obtain loans and good jobs without much trouble. There is much confidence in this idea, and this assurance is founded on a keen analysis of the main aspects that influence the credit service industry. The study supports the implementation of this idea with exceeding confidence in its prosperity. Works Cited Bailey, Gerry, Felicia Law and Mike Phillips. Save, Spend, Share: Using Your Money. Minneapolis, MN: Compass Point Books, 2006. Print. Borushek, Ralph Gabriel. Cut your debt now! How to Reduce your Credit Card and Loan Balances. 2nd ed. Wilmette, Ill.: Globalizit. 2012. Print. Credit Cards - Compare Credit Card Offers at CreditCards.com. (n.d.). Retrieved November 30, 2012, from < http://www.creditcards.com> Scott, Robert H. "Credit card ownership among American high school seniors: 1997–2008." Journal of family and economic issues 31.2 (2010): 151-160. Ulzheimer, John. The smart consumers guide to good credit: how to earn good credit in a bad economy. New York, NY: Allworth Press. 2012. Print. Wood, Kathryn A. "Credit Card Accountability, Responsibility and Disclosure Act of 2009: Protecting Young Consumers or Impinging on their Financial Freedom." Brook. J. Corp. Fin. & Com. L. 5 (2010): 159. Read More