Students and credit: 5 tips for parents – from parents
Before you help your child get a credit card, teach them how to use it
If you have a kid in college, or are about to move one into a campus dorm, you may be wondering if they’re ready for a student credit card.
A student credit card “can be a great tool for a student to responsibly manage debt and build a good credit record,” says Bruce McClary of the National Foundation for Credit Counseling.
However, lenders are more likely to approve a recent college grad who’s already shown they can responsibly use credit. They’re also more likely to offer lower rates or richer rewards, says Grant Sabatier, creator of Millennial Money website and author of “Financial Freedom.”
The older a recent grad’s credit history, the higher their score will likely be if they don’t miss any payments. “Opening a credit card as soon as you can, even if it has a $200 or $300 credit limit – it's going to establish that at any earlier time,” Sabatier says.
To help you decide whether your young scholar is ready for a credit card, and what you should do to prepare them so they use their plastic responsibly, CreditCards.com talked to six parents from around the country about their experiences in parenting college-aged kids and four financial experts.
Here are their five credit tips for college students:
1. Before you help your kid to get a card, understand the risks.
Unless your kid is over the age of 21 or has a part-time job, they probably won’t be able to qualify for a credit card on their own, McClary says. Instead, they’ll need to be added as an authorized user to a parent's card to establish a credit history, says Nessa Feddis, a senior vice president at the American Bankers Association.
“That really raises the stakes for parents,” he says. If your child racks up debt on the card, the parent who is the primary account holder on the card is responsible for payment. You could also try to find a card on which you can co-sign for your child, but you may have trouble finding an issuer that allows that. Some issuers, such as Discover, don’t allow parents to co-sign.
Being listed as an authorized user on a parent’s card will help students build a credit history. However, it may not carry as much weight with lenders as a card that students are responsible for paying, experts say.
2. Start educating your kids early.
Don’t wait until your kids are packing their bags for college to start educating them about credit.
Many of the parents CreditCards.com spoke with began talking with their kids about money well before they headed to campus. Some even gave their kids small financial responsibilities or included them in household money decisions.
For example, Henry Perez and his wife asked their then-teenage daughter to sit down with them when they paid bills – a chore that deeply impacted her.
She was surprised, for example, when she first came across a water bill.
“She realized we had to pay for water,” Perez says. “She was really taken back by that. Then she started developing an interest in paying bills.”
Perez also talked with his daughter about credit cards and other personal finance topics before she left for school.
Jeanne Kelly, a credit coach in Rhinebeck, New York, took a similar approach. She added her then-teenage daughter as an authorized user on one of her credit cards.
“She knew this card would go on her credit report,” says Kelly, so her daughter had an incentive to use the credit card responsibly.
As her daughter grew older, she added a store credit card and student credit card to her wallet. The cards helped her build good habits and develop some financial independence, Kelly says.
“Fast forward – she graduated college and needed a car. I didn’t have to co-sign. She has a FICO score over 700,” Kelly says.
Even better: “She looks at her credit report. She pays her balances,” Kelly says.
The moral of the story: Her daughter now has good credit habits she picked up early.
See related: 4 reasons why college kids need a credit card
3. Keep educating your child, even after they leave for school.
Don’t assume your work is done once your kid heads for college. Take advantage of any opportunities to guide your kids in their credit use, experts say.
For example, Kelly sat down with her daughter during a winter break and showed her how to pull a credit report.
Other parents periodically check in with their kids to make sure they’re using their cards responsibly. Perez, for instance, said he would regularly ask for updates from his daughter, even though she was responsible for her own bills.
“I would follow up with her every month just to make sure she was making the payments,” he says.
Taking an approach that is too hands-off can be risky. A series of mistakes on a student card can affect recent grads for years to come, says Gabriel Serna, a professor of education at Michigan State.
“A student’s credit rating, once it’s shot, can take years and years before it’s built up again,” Serna says.
Before sending your kids to school with a new piece of plastic, “make sure students understand this is not free money,” Serna says. “This is not just a blank check to go buy pizza for all your friends or go out for the weekend.”
Sandy Fowler, host of the Mighty Parenting podcast, says you have to talk about how credit cards work.
“If you haven’t crossed that bridge yet, you need to do that,” she says. “You can’t just hand them a credit card and expect them to know how to use it.”
4. Help your kids sort through credit card offers.
Most of the parents CreditCards.com spoke with researched student cards on their own before helping their kids apply for one. Perez says he even compared cards on CreditCards.com before applying for a card on his daughter’s behalf.
Experts recommend working closely with your kids to look for cards that specifically suit them.
“They need to think about the product that’s right for their circumstances,” McClary says.
For example, students may be attracted to a card with a sign-up bonus, but when it comes time to meet the spending requirement to earn that bonus, they find they can’t afford to spend as much as the card requires to earn that initial haul of points or cash back.
Or they may choose a cash-back rewards card that offers bonuses on items they rarely buy.
Rather than let your college student pick credit cards on their own, or choosing a card for them, use the card application process as a learning opportunity.
That’s what Joyce Blue, a life coach in Boise, Idaho, did – she helped guide her daughter’s credit card search by giving her several ideas for where to look, then letting her compare cards on her own.
The exercise helped empower her daughter to compare cards on her own, but it still gave her a safety net.
Once her daughter had selected possible credit cards, both mother and daughter talked about her choices.
See related: 10 ways students can build good credit
5. Set limits – but don’t be afraid to let your kids fail.
Most student cards offer a relatively low credit limit, but if you think the credit limit that a bank has offered your college student is too high, encourage your child to ask for a lower limit.
“You can always go back and ask for more credit in the future,” Sabatier says.
Setting a stricter limit won’t just make you feel better. It can prevent your kids from getting into too much trouble, says Ron Whittington of Jacksonville, Florida.
Whittington set spending limits for both of his kids, which helped when one of his daughters quickly maxed out her first piece of plastic.
“She ran it up immediately to the limit and she learned real quick,” he says. Eventually, “she got it back down,” he says. “She learned the phrase ‘Put it on ice.’”
Don’t be afraid to let your kids make some small mistakes, Mighty Parenting’s Fowler adds.
“As parents, we have the tendency to want to jump up and save them,” she says, but getting into trouble and figuring how to solve a problem on their own is important for their growth.
You can help by peppering your kids with questions when they struggle, Blue says. “It gives them a chance to think about it and come up with answers on their own,” she says.
Don’t try to fix their credit or financial problems yourself, and don’t provide an easy answer. “You want them to feel empowered and that they are handling things well,” Blue says.
Finally, experts say that if your college student always pays at least the minimum amount due on their credit card, they should be OK with their credit cards long-term, even if they occasionally stumble financially.
With student credit cards, “it’s such a low limit, there’s very little financial trouble to get into,” Fowler says. “It’s a small step into the adult financial world.”
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