Credit Cards and College Freshmen: Pros And Cons

Once students graduate from high school and begin preparations for college in the fall, they are bound to get a pile of enticing credit card offers. Credit card companies are savvy. They gear their offers and reward programs to be particularly attractive to college students. However, is it a good idea to put a credit card in the hands of a college freshman?

The Pros of Credit Cards for College Freshmen

It teaches your child about financial responsibility. For many students, life as a high-schooler was free of bills. They saved their money from a part-time job and spent it on whatever random entertainment they wanted. College is the first step into the real world, which can be an expensive place. By learning how to use the credit card for necessities and paying off the balance on time each month, the student learns how to be responsible for personal finances.

It’s good for an emergency. Having the security of money readily available if a crisis arises, such as a car breaking down or needing to fly home during an emergency, puts both the student and parent at ease.

It’s safer than cash. Carrying around cash or leaving it in a shared and unlocked dorm room is never a good idea.

It’s convenient. For parents who are helping their children pay for necessities at school, credit cards are convenient. The student uses it; the parents get the bill. It’s easier than making sure the child’s checking account has funds or sending cash.

It builds a credit history. When students graduate from college, the first things they often do are rent an apartment and purchase a car, both of which are easier if they have already begun to build a good credit history of making payments on time.

You can monitor activity. If you’ve co-signed for your child’s credit card, you will both receive a copy of the monthly bill. You can make sure your student is using the card for what you’ve agreed upon, and he or she can’t raise the limit without your knowledge. If your child is the one in charge of paying the monthly bill, you will be able to see on the statement whether payments occur on time.

For more specific info on which credit cards are best for college freshman, read this article!

The Cons of Credit Cards for College Freshmen

It adds to the student’s debt. According to the U.S. Department of Education’s National Center for Education Statistics, 41% of college students who graduated in 2016 had credit card debt averaging $3,000. Add this to the average school debt of $37,172 and it’s not surprising the American dream of financial independence is getting further and further out of reach.

They have high interest rates. Credit card companies usually reel college students in with low teaser rates that end up rising higher than regular cards after the introductory period ends.

It’s easy for students to get in too deep. A lack of money management skills combined with an unclear picture of how easily debt can snowball is a dangerous mix for most students. They can quickly get in over their heads.

It can hurt your credit. As a cosigner, you’re responsible for paying the debt if the student fails to do so. Additionally, any late payments to the account will show up on your credit report as well, potentially hurting your credit score and your ability to secure future credit.

What You Can Do

If you feel that a credit card is an important and useful tool for your child to have as he or she enters college, consider taking some steps to minimize the risk of misuse.

1. Set your own limits that include paying the balance in full each month or limiting purchases to college-related expenses or emergencies. (Pizza is NOT an emergency!)
2. Thoroughly explain interest rates, credit scores, penalty rates, late fees, and the pitfalls of only paying the minimum monthly payment.
3. Have your child download a bill reminder app to his or her phone to avoid missing payments.

Alternatives to Credit Cards

Many parents choose to send their college student to school with a debit card instead of a credit card. When linked to his or her account, it’s easy to transfer funds when needed, and if deposits are on a strict timetable, the student will have to learn how to budget. Prepaid credit cards are an option as well, but note that neither of these options would help your child build a credit history.

If you feel your college freshman isn’t quite ready for the responsibility that a credit card brings, it may be most beneficial to begin with a prepaid card with a low balance. Ultimately, your child needs to begin to build a good credit history before stepping out into the world, and with the right precautions, your child have the financial skills to succeed in the future.