Credit cards and your college student
While your son or daughter is off at college getting an education both in and out of the classroom, you should be concerned. Not just about their health and safety, but about their credit card usage and how it may impact their credit score.
Parents may not even be aware until after the fact that their college-age child has a credit card account. Since a parent no longer has to co-sign an application, a child 18 years of age or older can easily get a credit card on his or her own.
Students have become an attractive demographic for credit card issuers. As a result, credit card companies are willing to accept the increased risk of directly extending credit to a young person with little to no income and who may also shoulder a significant student loan burden. Luckily, students have a lower default rate than many parents might imagine.
College students, and especially freshmen, are especially vulnerable to credit card pitches for a number of reasons. First is the fact that young adults are accustomed to growing up in a credit-laden society where it is not unusual to carry debt. Secondly, unlike the stereotypical "starving student" who was always just scraping by, co-eds now arriving on campus expect to continue the same lifestyle enjoyed when their parents were responsible for paying the bills. But at the same time, many young people lack an understanding of how credit works.
According to experts, many colleges now make credit cards easily available to students through affinity cards that bear the school's logo, colors, or mascot. Through the use of licensing contracts, the college may earn a fee for every credit card account that is opened, while the credit card issuer gains access to students. When looking for a student credit card, young people should be made aware that colleges often are only screening the credit card offers they receive on campus for best deal for the school.
Another thing mom and dad need to remind their college kids about is the subject of identity theft. Experts note that college students make an ideal target for identity thieves since many of them do not check their credit reports, allowing crooks to make use of their card information and destroy their credit before the student is even aware of it.
Therefore, parents should sit down with their child during school vacations to review the young person's credit report, which is available by law for free once a year from each of the three credit reporting agencies. This can serve as the ideal time for a parent to educate their child. Experts recommend staggering the requests for credit reports rather than ordering them all at the same time, allowing you to hit a different credit bureau every four months. This technique will make it easier to catch any errors or points of concern sooner rather than later.
Experts also discourage parents from taking a "tough love" approach when their college student runs up a bill he or she can't afford to pay back. It can be dangerous to force a young person to tackle such errors in the credit arena, since they could be haunted by a ruined credit report into adulthood. It helps to remember that you are the one earning an income, and instead negotiate how you will help your child pay off the credit card debt.
Also, assuming that your child is only using your existing credit card account could result in a false sense of security. It is quite possible the student has a second card in their own name which they can use to run up charges they don't want a parent to see.
Not every student is mature enough to handle a credit card right off the bat. A parent might want to only allow their child to use cash or checks in their first semester of school, then allowing them to have a debit card or prepaid debit card after that. If your student shows restraint, you can reward him or her with a credit card that offers a low limit, perhaps $500. In each following year, you can have the limit increased so that it offers $2,500 or so by graduation.
Published: November 14, 2006
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