Teaching your college-age child about the realities of credit is challenging. When they were young, they thought you knew everything—now, however, they’re more apt to think you don’t know much of anything. Are they wrong? Yes. Is it important they learn about the good, the bad and the ugly features of credit? Absolutely.
Why They Need to Learn About Credit
Explain how important credit is to their future. People need to establish healthy credit to buy a car, buy a house and get a loan. If their post-college plans include opening their own small business, an American Express small business credit card will help them manage cash flow. Some employers even check credit before hiring. Stress these points:
- Good credit delivers many benefits; poor credit will follow them long-term
- Becoming a good credit manager helps them in other areas of their lives
- They needn’t learn all the nuances, nor develop expertise in all forms of credit
- Becoming financially responsible improves their quality of life
There are numerous resources that can help teach your children about the merits of establishing good credit, including iGrad.com.
Ways College Students Can Establish Good Credit
- Allow students to become authorized users on your credit card accounts. You maintain control of your accounts, but this way you can monitor your children’s spending habits and make necessary “corrections” as necessary.
- Have your student open his or her own credit card account. Although rules for college student credit card accounts tightened with the Bank Card Act of 2010, lenders still allow students to have a card in their own name, if they have income sources.
- Make only sporadic and small purchases. Credit cards should be used, but only in moderation. Firmly advise your college students to make only sporadic use of accounts. Tell your children to make only small purchases to establish good credit.
- If possible, use credit only in emergencies. Strongly advise your children credit cards are not appropriate for expanding shopping habits, but should be saved for emergency needs.
- Keep balances low, paying down every month. Advise them to make more than the minimum monthly payment or to pay off balances each month. Tell your kids to keep balances at 30 percent or less than credit maximums to improve their credit scores.
- They should never co-sign for friends or family. College students seldom understand that co-signing loans legally obligates them to make all monthly payments. Make them aware that their own credit can be damaged if other people, for whom they co-signed, become delinquent on loans.
According to financial lawyer Leslie H. Tayne Esq., credit cards may be the best teaching tool you can use for your college students about the realities of financial responsibility. Establishing guidelines for card use is critical to delivering the right message to your college students to develop solid credit building habits.
About the author: Allan is a grad student majoring in microeconomics. He is a fan of the outdoors and hopes to one day merge his passions