It can be a scary thought sending a child off to college with fresh new plastic. Anyone with credit runs the risk of building debt. Credit cards can be a great learning tool for any college student, because it teaches responsibility and how to budget. Even better, it gives a parent an excuse to talk with their child once a month to discuss the bill.
In 2009, The Credit Card Act was passed making it difficult for college students who do not have their own source of income to qualify for credit. At first, many students are only authorized on their parent’s card. This is a great way to monitor what the child is doing. Giving them a small credit limit, such as $500, will avoid overspending. Every month when the bill comes in, the parent will see all of the activity and will give them a chance to coach their child going forward to avoid damaging the credit score. For instance, if the college student does overspend, it gives the parent a chance to discuss what happened and how to avoid this mistake in the future, when the dollar amount becomes larger.
Paying a credit card in full every month helps avoid interest charges. It also encourages a person to live with their means and spend only what they can afford. Parents should break down a credit statement for their child. Review all charges, check the interest rate, and understand any additional fees.
Spending is easier to track with a credit card, than if you are just using cash. When helping a college student live within their means, they often lose track of where their money is going. Careless decisions happen on things such as restaurants and clothes. Switching a child to credit helps monitor where they are spending and helps define what is necessary and what isn’t.
Choosing a credit card with rewards is a fun and encouraging way to help a college student be a responsible credit user. For instance, receiving cash rewards for things students need, like gas and groceries.
Creating the building blocks for a strong credit score while in college is a nice thing. Most students are ready to take on the responsibility of their own spending. Even if they’re not, a few mistakes early on will help them avoid larger ones in the future.