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Should You Give a Credit Card to a College Student?

Plastic can help your kid build credit, but it can also rack up high-interest debt. We'll show you how to minimize the risks.
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student with credit card

College will teach your child many things. Do you want to add financial lessons to the mix? Deciding whether to send your kid off to school with a credit card in their wallet can be quite a challenge.

To help you make up your mind, we'll go over the good and bad aspects of a student having a credit card, and offer tips for working around the pitfalls.

Credit Cards Can Help Build Credit

It's important for students to build credit. "Your credit score will play a vital role throughout your life and college is a great time to start building it up," says Leslie Tayne, an attorney specializing in debt and financial issues with the Tayne Law Group. "According to FICO, 15% of your credit score is based on the length of your credit history. The earlier you start developing credit, the more you can reap the rewards."

'Fifteen percent of your credit score is based on the length of your credit history. The earlier you start developing credit, the more you can reap the rewards.'

Plus, having a good credit score when you graduate from college sets you up nicely for self-sufficiency. "It allows you to get an apartment or house, determines if a lender will approve you for a loan or line of credit and it can even help you land a job! Building your credit is not something you want to put off," Tayne says.

Know Your Options

If you go the credit card route, note that the Credit CARD Act of 2009 requires credit card applicants under age 21 to either have an independent means of repaying the debt or a co-signer who's at least 21 years old. This law also prohibits credit card issuers from sending preapproved credit card offers to underage consumers.

Be sure to shop around and search for the best credit card that suits your child's lifestyle. "There are a ton of student credit cards that offer low-interest rates or 0%," Tayne says. "With a student credit card, you will have a lower limit to ensure you don't go over your credit line. The majority of the time students will need to have a steady source of income and be an attendee of a school." Card benefits may include rewards to scholars if they receive good grades.

SEE ALSO: 8 Best Credit Cards for College Students

Other credit cards may require a co-signer, as mentioned above — and that's likely to be you. Another option is to add your child to your card as an authorized user.

Secured credit cards are also an easy way for someone to build their credit from scratch. A secured card requires an upfront cash deposit, which equals to a line of credit and acts as collateral.

Watch Out for the Pitfalls

Truth is, it's fairly easy for a freshman to get a credit card. "The credit card companies know that college students statistically have a high forward earnings potential," says Lyn Alden, founder of Lyn Alden Investment Strategy. "As long as the student knows to pay off his or her bill every month, and not to spend inappropriately, it helps build credit with zero downsides.

"The biggest risk is if the student buys things frivolously, doesn't pay their bills on time, and racks up debt and interest," she continues. "This can backfire, and result in wasted money and a damaged credit score."

'Credit card debt tends to charge higher interest rates than student loans and lacks many of the protections provided by student loans.'

Mark Kantrowitz, publisher and vice president of strategy for Cappex.com, a college financing website, cautions that most college students already graduate with a lot of student loan debt. "The last thing they need is to also graduate with a lot of credit card debt," he says. "Credit card debt tends to charge higher interest rates than student loans and lacks many of the protections provided by student loans.

"Another problem with credit cards is that paying with plastic feels the same whether you're spending $5 or $500, so it is too easy to spend money," he adds.

Indeed, this is not free money. "Your child must realize that they will have to pay off their credit card and comprehend the income to expense ratio," Tayne says. "Advise him/her to resist using cards to support their social life. It can be convenient to pay with plastic for a night out or a Netflix subscription, but you risk living outside of your means.

"You don't want to be in a situation in which you can't pay your bills at the end of the month," she notes. "Missing payments or paying just the minimum can result in being hit with late fees and hefty interest charges."

SEE ALSO: 4 Reasons Making Just Minimum Payments Is Bad, and How to Pay More

Parents should also think twice about co-signing. Kristin McGrath, editor at CreditCardForum.com, says, "If you're giving your child a leg up via a co-signed account or an authorized-user card, you've just added another worry to your plate while he or she is away at college.

"Because the card's in your name, too, your credit will get dragged down if payments are late," McGrath says. "If you're paying all the bills, you also run the risk of teaching your kid the wrong lesson — that credit cards are free money and that everything she wants is just a swipe away."

Work Around the Challenges

However, the hurdles are worth jumping over if your child ends up with a solid foundation for using and managing credit.

Kantrowitz recommends students never carry a balance on a credit card. "If you carry a balance, you are living beyond your means," he says. "If you have a tendency to spend more than you can afford to repay, switch to paying with cash. When you run out of cash, you have to stop spending. Also, the largest denomination should be $20, so you feel like you're spending money when you're buying something expensive."

'If you have a tendency to spend more than you can afford to repay, switch to paying with cash.'

Another tip is to get a credit card with no annual fee. And make sure the card allows at least a 25-day grace period for payment. Sign up for automatic payment of the monthly credit card bill by arranging to have the amount transferred from your bank account to the credit card.

In terms of specific cards, "Look at rewards cards, like Discover and the Citi Double Cash Back card," Kantrowitz says. "This can save you money."

Tayne offers a final tip: "Parents should teach their young adults that it's vital to check their monthly statements," she says. "The point of doing this is so you are always in the know of your charges. Additionally, it can prevent you from being a victim of fraud or identity theft."

Readers, what do you think are the biggest pros and cons of getting a credit card for a student? Did you have a credit card when you were in college, and if so, how did that work out? Let us know in the comments below!


Contributing Writer

Sheryl Nance-Nash is a New York City-based freelance writer specializing in personal finance, small business, general business, and travel. Her work has appeared in The New York Times, Money, DailyFinance.com, Forbes.com, and many more.
DealNews may be compensated by companies mentioned in this article. Please note that, although prices sometimes fluctuate or expire unexpectedly, all products and deals mentioned in this feature were available at the lowest total price we could find at the time of publication (unless otherwise specified).
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6 comments
tconstan
We agreed that one way we would help our sons with college expenses is to buy all of their food. We had them obtain a credit card to be used only for that purpose (or other transactions we said were OK). Throughout college we had them ask for credit increases to decrease their credit utilization ratio. Of course this was a no fee rewards card that we paid off every month. My oldest son graduated with an excellent credit score and my son who's a senior is well on his way.
wdstancil
I just added the kids when each reached 16, since they were driving then.

I can easily monitor their purchases online.

It's tough to be 18 in college or out on their own without a credit or debit card.
thisisasj
@ski522 I think you answered your own question. The majority of kids who don't know how to balance a check book, and consider credit cards to be free money come from parents who aren't sure if their child is capable and mature enough to handle a credit card.
The Oracle (DealNews)
I was told not to get a credit card while I was in college. Sometime after college, I tried to get one to start building my credit. I was denied - even by Walmart! I had no credit history & therefore couldn't get a regular credit card. All I could do was get a secured credit card through a local bank.
ski522
Why does one need an article to know if ones child is capable and mature enough to handle a credit card? Sadly I have found the majority of kids don't know how to even balance check books and consider credit cards to be free money with no concept of what ludicrous high interest rates mean for that "free" money!
mnrodent
If your son/daughter is trustworthy AND you have the ability to always pay your credit card bill off in full each month AND you review all of your card transactions each month, then add your son/daughter as an authorized signer. Why: you can monitor transactions online to see what they are buying. Plus with a rewards card like a Citi Double Cash card that pay 2% cash back, you will get rewards for their transactions too. As an authorized user they WILL gain credit history that should help them later on. If they are not trustworthy they should use a debit card which will not offer rewards and will not build their credit history. Secured Credit Cards offer very small lines and often have deposit account requirements that are onerous and/or tie up your cash.

Another option is prepaid cards, but typically a debit card is a cheaper option. Prepaid cards are typically best for those who do not have bank accounts or if given as gifts. Most prepaid card have an upfront fee.
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