There are many good reasons for a college student to have a credit card, such as establishing a healthy credit history and having funds available in case of an emergency. Before your student takes this important financial step, take some time to talk with them about interest rates, grace periods, penalty fees, and the burden of carrying a balance. They should understand that credit cards, when used properly, are an effective means for building a good credit history. But when used carelessly and irresponsibly, credit cards may do more harm than good—students may find themselves in debt and the victims of a bad credit report for years following graduation.
With the low credit limits often given to college students, you may be wondering why companies view them as appealing cardholders. The answer is loyalty. Credit card companies know that students tend to use their first card long after graduation.
If you and your student have decided a credit card is necessary, set up some guidelines and ground rules. Communicate with your student, and let them know that credit cards don’t provide free money. Monthly statements must be paid on time and in full, preferably. Determine the credit card’s function: is it for emergencies only or for school supplies and books? Set a foundation for your student’s credit card usage to avoid frivolous purchases. Also, figure out a budget. Put your student’s monthly expenses on paper, and estimate how much they can afford to pay on a credit card. You may want to monitor your students’ card activity the first semester of college to make sure they are using the card properly and aren’t accumulating a large debt.
As a parent, you can provide the best example for teaching your student about managing credit cards. Sit down with your student and go over a credit card statement with them. Explain what particular terms mean—finance charge, minimum payment, credit limit, cash advance. Emphasize that they should read through the charges listed on their card to ensure mistakes haven’t occurred. Show them how you factor credit card payments into your monthly budget, and stress the importance of paying the bill on time to avoid late charges. Impart some of your credit card wisdom. Learning from the examples you’ve given them, your student may be better prepared to handle a credit card when they begin college.
When it comes to applying for a credit card, students should be selective. To stay debt free, shop around for a card that offers the following:
- low interest rates or finance charges
- low or no annual fees
- a grace period for posting finance charges
- other benefits such as warranties, free gas, and airline miles