Credit Cards and College Students

As you get ready to send your child off to college for the first
time or as a returning student, you may be thinking, “Should I send
them with a credit card?” Credit cards can be a plus and a minus;
they are a convenient way for your child to have the means to
support their financial needs, be it books and supplies, or food and
entertainment. The minus is that they can go overboard with
spending.

Obtaining a credit card for a college student can
teach them a lesson in financial responsibility and the use of
credit.  However, there are some important points you should
know in order for this experience to work out well for both parent
and student. 

Have a
conversation.
Have a conversation about the credit
card
that you are giving your child, and explain what it is to
be used for, as well as what the implications are if they misuse
the card. This is also a good time to talk about what a credit
score is and how important it is to build a good one.

Keep a low limit. The higher limit, the greater
the opportunity for a compulsive purchase. One of the most
important things a college student can do for their future is to
begin to build their credit. A credit score will follow you for
life; a good score will help you obtain loans for life’s
essentials.

Read the entire statement. Don’t just breeze
through it; look closely at it. It is a good way to know your
child’s purchase patterns. Ask questions as it can be possible that
your son or daughter’s credit card number is in the wrong hands and
some purchases were made without authorization. Follow the credit
card company’s dispute procedures and remove fraudulent
charges. 


Pay the entire amount.
When the monthly statement
arrives in the mail, pay the balance in full. Leaving a balance on
the card will lower your credit score plus you pay an incurred
interest on the balance.

Authorized User vs. Co-signer. Authorized user
and co-signer arrangements are collective in nature; they carry a
considerable amount of risk. It is important to have a clear
understanding of what they are.

         An
authorized user is essentially a guest on your
account. Your son or daughter will have charging privileges only,
even if the bills are mailed to their address and are in their
name. After all, the credit card company did not use their
information to determine qualification and acceptance, they don’t
own the account and aren’t legally responsible for the payments.
The credit card company expects you, as the owner of the card, to
pay the balance every month.

         A
co-signer is when you and your son or daughter is
a joint cardholder and both of you are contractually obligated to
keep the account in good standing. The credit card company views
you and your child as equal partners and can file a lawsuit against
either of you if the account goes into default. Once you co-sign,
you can’t be released from the account. If the card is regularly
paid off on time; your child is starting out their adult life with
a positive credit rating.

When it comes to giving college student or a young adult a
credit card it is best to sit down with your child and determine
the best way of handling the issue of authorized user vs. co-signer.