KrantCents

Making Sense of Money

Teach Your College Student the Wonders of Good Credit

Teach Your College Student the Wonders of Good Credit

by

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

Comments

    • My parents never had credit cards! They had several successful businesses and never had credit cards. I learned how to use one on my own. If used responsibly, it is a convenient way to pay bills and establish credit.

  2. My dad put me as an authorized user on his main credit card a long time ago. This didn’t help teach me about credit, but it did help get me a good score. I would like to give my kids some experience with credit from the bank of Mom and Dad when they’re much younger than college age.

    • Learning to act financially responsibly does not require credit cards. Children can learn this in a variety of ways.

  3. Great post! My sister is looking for her very first credit card, and I’m hoping that she won’t treat it as extra money, instead as a way to build her credit.

    • I see credit cards as a convenient way to pay for purchases, but never as a credit facility. You can build up your credit by just using it responsibly.

  4. These are some great ways to build credit, especially if done in small amounts so as to allow you to not go overboard. Unfortunately, too many view credit cards as free money when they really should be handled carefully.

  5. I’m actually excited to get my kids a credit card. Good money habits are going to be built in (trust me on this one), so the credit will be just the same as cash to them. Building credit has benefits such as low mortgage rates and premium credit card signup bonuses. WOOP!

  6. These are all great options to teach college kids good practices. My mom educated/scared me so much about credit cards before I went away that I never was tempted to get one. Worked out well for me – I wasn’t tempted or making drunk purchases!

    • Interesting strategy! I introduced credit cards to my kids early by letting them use mine.

  7. In my college I read rich dad, poor dad book. Since then my concept of asset vs. liability is very clear. No one taught me how to use cards, its the instinct that forces me to pay full balance every month.

    • I treat credit cards as charge cards! I use them as a convenient method of payment and pay the entire balance every month too. The interest rate was always a deterrent to me.

  8. I’m so glad that my parents taught me to use credit responsibly. My first credit card was for Lazarus (LOL) and it had a $100 limit. My mom taught me to pay it in full every time I used it and that lesson has (mostly) stuck with me over the years.

  9. From a young age my mom put the “fear of god” in me about misuse of credit cards. I’ve always been thankful she taught me about the dangers of credit card use young. When I got to college I knew I would only have one credit card that I would pay off in full at the end of each month. I still have that card and use it regularly (paying off the balance in full).

  10. I am fortunate in that even though I didn’t know what good credit would do for me as a kid, I still ended up with great credit. I always paid my bills on time and it paid off for me. I have never had an issue with my credit, which was great.

    • There are many aspects of responsibility you can learn that directly affect how you approach your personal finance.

    • You can learn financial responsibility before you touch your first credit card. I know I did!

  11. Good advice for parents. I wish my parents were better with money and taught me things when I was younger. I’ve ended up teaching them more PF advice than they gave me.

    • Living as a student is the first real life experience away from home. You can learn a lot of good PF skills. I know I did!

  12. Managing your credit score is definately an important skill nowadays. Especially if we consider the number of loans that are currently being taken. It’s essential to educate young people about how to manage their finances in a proper way and make sure that when they reach adulthood they will be well aware of finance management strategies.

    • The best way to make sure you have a good credit score is to act responsibly financially and monitor your credit agencies.