The odds point to your answers being “a lot” and “yes,” and credit card companies know it. That’s why the Internet, and social media in particular, is the next frontier for personal finance marketing.
Now, here’s another question for you: Why should you care? There are three reasons, each more important than the next: 1) The use of social media is a new tactic, designed to thwart consumer protections, and you should know when you’re being pitched; 2) You can actually profit off this newfangled marketing approach; and 3) It’s important that you build credit as soon as possible.
Don’t worry we’ll explain.
New Tactics
For years the end of summer not only signaled the return of students to college campuses nationwide and the end of a long-awaited countdown to football season, but also the beginning of a feeding frenzy of sorts for banks. They would claim their turf next to the student union or near the football stadium on Saturdays, set up tables, and get to work recruiting their next generation of customers. Offering t-shirts and other assorted swag as credit card application incentives, they would garner leads for thousands upon thousands of potential new cardholders, many of whom would surely be in the market for small business loans, mortgages, investment services, and more in the years to come.
It was a good strategy. A college degree carries with it hundreds of thousands of dollars in additional earning potential, and the age of most students makes them potential lifelong, highly lucrative customers. Plus, what does a naive college student know about credit cards? Approach ‘em where they feel comfortable, give them a t-shirt, and they’ll sign up for anything. That’s the attitude banks took as well as the rationale that got on-campus marketing shut down.
The CARD Act of 2009, which took a sledge hammer to many of the anti-consumer practices employed by financial institutions prior to the Great Recession, included a provision banning banks from offering gifts to students on campus in return for their filling out an application. Banks therefore had to find a new approach, and using social media to bring their offers into the dorm rooms made perfect sense. For example, 86% of Internet users age 18-29 use Facebook, and we all know how coveted that demographic is.
How You Can Profit
While banks are certainly looking to build brand awareness and garner new customers, that’s not to say they’re providing nothing in return. In order to encourage young people to interact with them online, they’re offering attractive rewards earning opportunities:
- Facebook & American Express Link, Like, Love – By linking an American Express credit card to your Facebook account, you can sign up for special deals from retailers and then automatically save when you make corresponding purchases.
- Chase Facebook “Like” Contest – Chase has held a number of different giveaways in which Facebook users who “Like” Chase on the site are entered into a raffle for prizes including $500, $1,000 Amazon.com gift cards, and even a cool $1 million.
- Farmville Rewards – If you’re into this popular online game, you have a couple of different ways to save. Discover has offered new customers who sign up for a credit card through Farmville $100 in virtual currency usable in the game. In addition, American Express recently launched a Farmville Prepaid Card that allows users to earn virtual currency by making certain transactions or meeting certain account benchmarks.
- Rewards Sharing – You may have seen the commercials; Citi allows customers to pool the rewards they earn via a Facebook application in order to garner more lavish perks than would be attainable alone.
Importance of Credit Building
Now that you have a better sense of how the credit card market operates in the social-media-oriented post-CARD Act environment, let me explain why you should begin your credit career as soon as possible. A credit card is the most effective credit building tool available, as account information is relayed to the major credit bureaus every month. As long as this information reflects responsible use – paying for purchases on time every month or not spending at all – your credit standing will gradually rise.
Why is it important to have a solid credit score? Well, your credit score not only impacts the credit cards and loans you’ll get approved for down the road, but also your ability to rent an apartment, lease a car, or even land a job after graduation. That last point is likely to be a particularly important concern for most of you given the currently tough job market and the fact that employers are increasingly using credit information to screen potential applicants.
At this point, many of you are likely thinking that building credit prior to graduation is a noble objective, but the new personal finance laws prevent people under the age of 21 from obtaining credit. While a popular myth, that’s not strictly true. College students must simply either have a co-signer or be able to display the independent income or assets needed to pay a credit card’s monthly minimum. That shouldn’t be too big of a hurdle for most folks, as most student credit cards will have a minimum payment of $15.
Ultimately, college is all about the acquisition of knowledge and preparing for the future, so as the semester gets under way, keep in mind the importance of learning about personal finance and securing a bright financial future by opening the right credit card and using it responsibly.
This is a guest post from Odysseas Papadimitriou, CEO of the credit card comparison website Card Hub and the personal finance social network Wallet Hub.
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