If your teenager headed off to college this fall, you probably already knew many of the new experiences that awaited him or her on campus. New friends, classes, all night cram sessions and stale pizza–all the staples of college life. You probably went shopping for dorm essentials and talked to your child about the importance of getting good grades and regularly attending classes. But another topic that you should discuss is that of money and credit card management.
Today’s college students can be overwhelmed with credit card offers when they walk onto campuses. On many campuses there are booths offering free food, school supplies and T-shirts to persuade students to apply for a credit card. For credit card companies, visiting college campuses is a sound investment–most college students with credit cards will remain loyal to their first credit card company for several years.
When you consider that credit card companies tend to make their profits from long-term customers that carry a revolving balance, college campuses are the ideal location for credit card solicitors.
Many college students are not yet responsible enough to manage credit and have their own credit cards. But, by educating your children in advance, you will help them act responsibly when they do receive a credit card. If you’ve been preparing your child to handle credit, the transition to independence will be reasonably painless. Here are some simple tips to share with your child:
• One card is sufficient.
• Make sure when applying for a credit card that tuition and allowances are not included as “income.”
• The higher the income level, the higher the credit limit will be.
• Pay all your bills on time! The quickest way to damage your credit history is by not making timely payments to creditors.
• Don’t let anyone borrow your credit card–even your best friend. You will be held responsible for all charges.
• Record all transactions so you’ve got an idea of how much the bill will be at the end of the month.
• Keep the card active by periodically charging (and then paying off) small purchases.
• Create a spending and budget plan–monthly credit card payments should never exceed 20% of your monthly income.
• If credit card debt occurs, ask for help. Don’t wait until the accounts have been sold to a collection agency before seeking help.
• Don’t forget that credit is a serious matter. If debt is unavoidable and bankruptcy is the only alternative, it will remain for up to 10 years on your credit report.
If you haven’t talked to your teenager about credit, or if you have younger children still living at home, here are some simple ways to begin teaching them about good credit:
• Consider making your teenager an authorized user on one of your credit cards. S/he will receive a credit card with his/her name on it, but s/he will be tied in directly to your account. You will be held liable for any charges s/he makes on the card, but it is a good learning tool. Make sure s/he keeps a record of what they spend and that s/he can afford to pay you for the items purchased on credit.
• If your teenager is older and has demonstrated good financial responsibility in the past, consider cosigning for a credit card. This card will be in your child’s name, but again, you are ultimately liable if s/he cannot pay for his or her purchases. However, this card, unlike the authorized user card, allows your child to begin building his own credit history, because s/he is the primary user on the account.
Most importantly, remember that learning to use credit is a new experience for many college-bound students. While it may seem nerve racking to let your child open credit cards in his/her own name, it is an invaluable learning tool for the real world. Talk to your child about using credit responsibly and about the consequences of collecting a lot of debt. Make your child comfortable when s/he is asking for advice regarding good money management. By doing so, your child will be more at ease and possibly inform you of credit problems before they get out of hand.