How to help your college student with credit
When I was in college, I once applied for a credit card in exchange for a sandwich.
It was 2005, and the bank had a booth set up right outside the campus grocery store. When I walked by, the salesperson asked me if I wanted to get a credit card for a free Subway foot long. There was no annual fee, so I thought, why not? I got the card and the sandwich, feeling as though I had just hit the jackpot. That year, my annual income was $3,000.
My parents taught me about the value of building a good credit history growing up, and I knew how important it was to stay on top of my payments and watch my spending. Still, I made a few mistakes along the way. It鈥檚 easy to overspend or miss due dates when you鈥檙e new to credit, as many of us know. That鈥檚 exactly why a parent鈥檚 guidance and financial support can be so important in those early years.
Helping your kids get credit cards in college will empower them. It can help them build credit, learn to manage their money, and cover emergency expenses. And although today鈥檚 credit card regulations help prevent the worst situations 鈥� it鈥檚 now illegal for issuers to market credit cards near or on college campuses with incentives like sandwiches, for example 鈥� it鈥檚 ultimately up to students and parents to protect their bottom lines.
Here鈥檚 how you can help your college students navigate the world of credit cards.
Talk to your kids about credit
Your kids probably know about the value of studying hard, getting good grades and saving money, but the topic of building credit might be brand new. Whether they鈥檙e going to college for the first time, or returning for another year, it鈥檚 important that they know how this works听产别蹿辞谤别听getting a听. So tell them about when you got your first credit card, and talk about how FICO scores work 鈥� or听. Share your embarrassing credit mistakes, so your kids know what not to do. Remind them that while they鈥檙e in college, building credit with their credit card is the main goal, not earning rewards or getting a higher credit limit.
Talk about how building good credit听听on car insurance premiums, cell phone plans, mortgages and auto loans for years to come. Let them know how it will make it easier for them to rent apartments, get jobs and even start their own businesses someday. The sooner they start building a positive credit history, the sooner they鈥檒l start saving money. That benefits both you and your kids.
A credit card can help your college students out听, of course. They鈥檒l be able to 鈥渇loat鈥� balances interest-free for about a month after the bill is posted, earn rewards and cover emergency costs such as car repairs and short-notice travel. These advantages are useful, but in college, when you鈥檙e building your financial life from the ground up, they shouldn鈥檛 be the main concern. College is stressful enough without adding credit card debt to the mix.
Offer your financial support
Forget Wii consoles and iPhones: The best gift you can give your college-bound kids these days is good credit.
This is especially true now that credit card application requirements have become more stringent. If your kids want to get cards in their own names, they鈥檒l need to meet an issuer鈥檚 minimum income requirements. And if they鈥檙e under 21, as most college students are, they can report only their听听鈥� money from their part-time jobs, grants or scholarships. That can make it tough for them to qualify for a card on their own. Here鈥檚 where you can help:
Offer to co-sign for a credit card.听听give applicants the option of applying with a co-signer if they don鈥檛 meet the application requirements on their own. By co-signing for your college students, you鈥檙e putting your credit on the line for them. If they miss a payment, it won鈥檛 just hurt them 鈥� it鈥檒l hurt you, too. If you foresee that happening, you might want to go with a different option. But if you trust your students to pay on time, every time, co-signing can be an easy way to help them build credit. Once they meet the requirements on their own, you can take your name off the account and let your kiddos fly solo.
Add your kids as authorized users. If you already have good credit, you can pass it on to your children by making them authorized users on your credit cards. Your kids鈥� scores will benefit as long as your听听to the credit bureaus every month.
As the primary cardholder, you鈥檒l still be responsible for paying the bills for your credit card. So before giving them cards linked to your account, agree upon spending limits and set expectations about how the card should be used.
Encourage better habits
You won鈥檛 be able to shield your kids from every financial mistake they might make, but you can encourage them to make better credit card decisions. Here鈥檚 how:
Praise good work. If your college students are doing a great job keeping their spending in check, or paying their credit card bill in full and on time every month, let them know. By paying their full bill every month on time, they鈥檒l avoid late fees and interest charges. And by keeping their balances low, they鈥檒l be able to听听and sock away more money in their emergency funds. Your encouragement can motivate them to keep up the good work.
Ask, 鈥淗ow can I help?鈥� If your kids slip up and forget a payment or charge too much, be patient and direct. Ask what happened, and see if there鈥檚 a way you can help them fix the problem and learn from it, maybe by offering to pay part of the bills, working out budgets together, or setting up autopay on their accounts. Give your kids the benefit of the doubt, but be prepared to use tough love. If they keep making costly mistakes, consider taking a break from credit cards to work on the underlying problems.
Keep the conversation going. Forward helpful articles about credit card tips to your kids鈥� via email, or tuck clippings into care packages. If one of your college students鈥� favorite late-night comedy shows features a segment about credit, 脿 la 鈥淟ast Week Tonight With John Oliver,鈥� send it to them and ask what they think. By bringing up credit in day-to-day conversation, your kids will feel more comfortable coming to you with credit card questions when they arise.
Some things haven鈥檛 changed
In the end, your kids鈥� credit card issuer can鈥檛 force them to pay their account in full and on time every month, or stop them from spending too much 鈥� and neither can you. The toughest credit card regulations might protect your college students from signing up for credit cards just for the free sandwich, but it won鈥檛 make them financially invincible.
As much as you want to, you might not be able to make your kids鈥� experience with credit cards in college a perfect one. Mistakes happen. That鈥檚 life.
But by supporting your college students in their first venture into the world of credit, you can make their experience with credit cards positive. The work starts in the undergraduate years, but the benefits last far beyond graduation.
Sean McQuay is a credit cards expert at NerdWallet. A former strategist with Visa, McQuay now helps consumers use their credit cards more effectively. If you have a question about credit, shoot him an email at asksean@nerdwallet.com.
This article first appeared at .
