Credit cards, and the impact they can have on a student’s credit, are something parents should be thinking about throughout their child’s college career.
Sallie Mae says college seniors have an average credit card debt of $4,100, an average balance of $3,100 and most (84 percent) have one or more credit cards.
The cardinal rule of credit cards for college kids is the same as it is for working adults: Credit cards can be a good thing or bad thing, depending on how you use them. If you want to help ensure your child makes smart credit card decisions, sit him down before school starts and talk over a few key points.
First Things First
Before your college kid gets a credit card, he should have a checking account. He’ll need it to pay the credit card bill. Consider making it a joint account, so you can help monitor activity on it and make sure he’s making good decisions. He can also set up automatic payments online to ensure he never misses a credit card payment.
Prepaid vs. Secured
Some parents think a prepaid credit card can teach their child credit responsibility with less risk than a regular card. But prepaid cards don’t build your credit score. A secured card, one that starts out with an initial deposit to the account, is another option that can impact your credit score, so you have the opportunity to build your credit by making monthly payments.
Don’t Fall for Freebies
Many students get their first credit card on campus, wooed by offers for cool free gifts just for filling out the credit application. But the application alone could affect your credit score, since credit bureaus track new credit applications as part of their reporting process. And the number of credit inquiries on your record is a factor in determining your credit score.
Know When to Use Credit
If you need a new laptop or don’t have cash in hand to cover the cost of this semester’s books, a credit card can make sense. You’ll be able to spread a necessary cost over a few months, making smaller, manageable payments. Don’t use a credit card for things like pizza delivery or a tank of gas. Those things will be quickly consumed, leaving you with nothing to show for the debt you’ve incurred.