You will have a lot to think about when your child starts going to college and one of those is whether you should get them a credit card or not. It is understandable that you might be too focused on helping them pay for higher education. This can mean getting access to any form of college funds or even guiding them with their student loan applications.
But you should not be quick to hand over a card to them – even if you know it will make you feel secure because they will always have the means to pay for their needs. This purchasing tool, although it is driven by our personal choices, is a double-edged sword. It can bring out the worst in a consumer – in the same way that it can bring out the best in us.
As a parent, you want to make sure that the credit card will only bring out the best in your child. These cards can be a powerful aide to help college students build a credit history and develop the right financial habits.
According to the data from CreditCards.com, the average credit card debt of holders in the US is $5,540. If you only consider the cards that carry a balance, it goes up to $7,494. This difference means there are people who can successfully manage their card purchases so that it does not end up in debt. You have to make sure that your kids will be part of the statistic that brought the balance of the average debt down to $5,540.
2 options for a college student credit card
Obviously, this article does not see anything wrong with giving your college student a credit card. According to the data from LendEdu.com, these cards can be a great tool when you learn how to use it correctly. College credit card can help young adults build credit. Not only that, it is a great way for them to practice how to use credit responsibly.
Here are 2 options for your college student.
Use a secured credit card
This is a great option when you are still undecided if you want to get your child plastic credit or not. This has all the benefits of a traditional credit card with some safety features installed. Your child can use the card to make purchases and the activity is picked up by credit reporting bureaus. If used properly, this can help them build a good credit history. The great thing about it is that it requires a cash collateral before it can be used.
Using this type of credit card will not only benefit your child’s early credit score build up but it can limit the amount they use depending on the cash collateral. If you have a cash deposit of about $500 in the card, then that is only the amount your child can use. One thing you need to remember is that this amount might not include payment for monthly charges – so monitor this card closely.
Consider getting a student credit card
Another type of credit card you can get for your college child is a student credit card. One advantage of this card versus other traditional cards is that it has a relatively lower credit limit for the students to use. This means that if they ever choose to max out their cards, they would not be in such a deep debt hole they cannot climb out of.
Having a lower credit limit might be prohibitive for the students especially when they start thinking about financial emergencies. They also do not have enough elbow room to make purchases from their “wants” list because of the low ceiling on their card. This financial limitation teaches your child how to prioritize expenses and if they are able to accomplish this with small amounts of credit, it would be easier when they start using traditional credit cards.
These two credit cards will help your child develop the right financial habits – with your guidance of course.
But that guidance does not extend to co-signing. As a parent, it is natural to want what is best for you children and even if they set off for college, you still want to have an active part in their life. When it comes to their finances, there is that desire to want to make sure that they have everything they need especially when they encounter financial emergencies while away from home.
One of the quickest ways to get a credit card is to co-sign one for them but there are a few things you must know when co-signing loans with your child. Yes, this process is similar to co-signing a loan with your child. One is that if you are getting a new one, it would be beneficial to get a card that can give the lowest rate possible. This makes it easier for your child or you to make the payments.
While it might seem easier, there are a lot of dangers – specifically on your own credit report. So you have to be very careful if the only option for you is to co-sign a card with your child.
One thing you can do is to give them access to your existing credit card by asking your lender to give them an extension card. This gives them access to your credit limit, use the same interest rate and more importantly, use your credit history to build up their own score. You just need to remember to be a little more vigilant because when they make financial mistakes, it will reflect on your history as well.
How to make your student a responsible credit user
Here are specific tips that will help you teach your child to become a responsible credit card user.
Educate your child.
One of the best ways to help your child be more conscious with their credit card use is to educate them about responsible handling. This might not be a problem as Everfi.com shares that 90% of parents talks to their children about personal finance and money. The topic of credit cards could be a good one especially as they head out to different universities and colleges.
You can talk to them about how interest rates affect the payment they have to make when they miss a due date. This is also a good take off point in teaching them about grace periods and even late penalties. It might also be a good idea to teach them the value of their credit score. When your children are able to connect how their credit card use helps them with future financial benefits then it might spur better money decisions on their part.
Set the rules.
As their parent, you still have the responsibility of looking out for your children and if that merits setting rules with their credit card use, then do so. These rules can range from simple boundaries such as the amount that can be charged on a monthly basis or requiring them to monitor their balance taking the interest in mind.
The important thing when you set credit card rules for your college kid is to take into consideration their financial knowledge. The rules should not only be meant to regulate their credit use but to help them learn and discover financial lessons along the process. This will help ensure that you are able to help them stay out of debt and learn money management along the way.
Make them pay for the card – or at least a portion of it.
Your kids know by now that their cards are not some magical plastic credit where their financial obligation ends after they sign for the purchase. But if you keep swooping in and paying for the bill, they will never learn how to be responsible with the payment. This can also lead to more unnecessary purchases on their end because they know they do not have to make a payment on their card.
Asking them to pay for all or part of the bill also helps them experience budgeting in real life. Budgeting is a financial reality that you get better at the more you do it. Starting them early and letting them experience first-hand how credit decisions affect their overall budget can go a long way in training them to budget for bigger things later in life.
Discourage them from applying for multiple credit cards.
There are certain credit cards that are good for college students but it does not mean that they should get all of them. In fact, applying for multiple cards can have an adverse effect on their credit score and even you as a parent. For one, hard pulls on their report and yours when you are getting it for them will drag a score down. This can also create a false sense of financial security for them thinking they can simply get another card when they need additional credit.
The decision to get your child a credit card for college or not boils down to how prepared they are to use and manage credit. For them, using a card opens up a lot of financial opportunities as well as pitfalls that can plunge them into debt. The best thing you can do is to prepare them and guide them with their credit card use.
Here is a video that can give you tips on the right way to handle college credit card.
Common questions about credit cards for students?
Question: Can you get a college student credit card with a cosigner?
Answer: Yes this is possible. However, it is usually not advised because it endangers the credit report of the co-signer. If this is between a parent and a teen, it is advised that the former monitor the credit activities of their teen closely – both for the protection of their credit reports.
Question: Is it possible to get a credit card in college?
Answer: Yes it is possible but the college student’s options will be limited. If you cannot get a co-signer, you will only be limited to a secured or student credit card.
Question: What to do if you are in college with credit card debt?
Answer: The only way to handle credit card debt is to pay it off. While you are doing that, make sure you stop using your cards until you have paid off your balance.
Question: Can a college credit card be used to build credit?
Answer: This is actually the best way to build credit if you are still in school. Just make sure that you will practice the right credit habits like paying your bills on time and keeping your balance low. The best practice is to pay your balance in full within the grace period – to avoid the accruing interest.
Question: Are there college students with credit card debt?
Answer: Yes there are. The statistics change every year but it always a mix of those who pay off their balance in full and those who carry over to the next billing cycle. College students use their cards to supplement the funds they get from student loans or from their parents. It is used to finance living expenses.