Are you nervous about how your child will use a credit card while at college?
Thanks to the Credit Card Accountability, Responsibility, and Disclosure
(CARD) Act, there is less chance credit card companies will be bombarding your child with freebies on campus in exchange for completed card applications. And, your child should receive fewer preapproved offers in the mail, because the CARD Act prohibits credit reporting agencies from sharing your son or daughter’s info with card companies.
But your child still will hear about various credit cards from friends who already have them and from solicitors in the community.
Parental Guidance
Fortunately for parents, the CARD Act prohibits applicants younger than 21 from obtaining their own card unless they can prove they have the financial means, such as a pay stub or bank statement with adequate funds, to pay the bills.
If you want your child to begin
building credit in his or her name or you want him or her to have a card for emergencies, you will have to step in. And, if you co-sign your child’s card, you are jointly liable and your own credit might suffer if your child doesn’t pay the bill on time.
Cover Credit Basics
As a parent, you should take advantage of this teachable moment and encourage your student to use his or her credit card wisely.
- Tell your child how interest rates impact the ultimate price he or she pays for goods and services
- Discuss the importance of on-time payments and the negative impact on your child’s child score if payments are late
- Pull out a credit card statement and demonstrate how billing cycles and interest calculations work (thanks to the CARD Act, these calculations now will be shown on all monthly statements)
- Introduce him or her to budgeting
- Let your child know why it's a bad idea to go into debt
- Explain that it may seem like a compliment when credit card companies raise his or her credit limit, but it also can increase the dangers of overspending (under the CARD Act, if you co-sign your son or daughter’s account, you also must approve credit limit increases)
- You might even share a few or your own past mistakes
Card Options for Students
For parents wary of co-signing a regular credit card for their child, these options provide more control.
Prepaid credit card:
To make a purchase, your child must have sufficient funds in the account attached to the card. Otherwise, the transaction won't go through and the card issuer won't extend credit. This should ensure that you and your child's credit scores will not be tarnished.
Bank-secured credit card:
A bank can set up a secured credit card, with the card's credit limit generally equal to the amount of money in your child’s savings account. If he or she fails to make the monthly payments, the bank taps the savings account for reimbursement.
Add your child to your account:
This might be the ultimate test of trust and financial responsibility, but also it allows your child to build off your good credit. Make sure to monitor your child’s spending and check whether he or she pays the bill on time.