Five Important Factors to Consider About Credit Cards For Your College Student

It isn’t easy sending kids off to college. You know they’ll still depend on you for some financial support, even though you think it’s time for your child to experience life on their own. One of the biggest questions you may struggle with is the whole credit card issue.

College Students and Credit Cards – What to Consider

You may ask yourself if it’s the right thing to do to turn your teen into a credit-card-carrying adult with no strings attached.  It is our belief at PFME that credit card usage leads to mismanagement of your finances, resulting in spending money that you don’t have to impress people that you don’t like. We do realize that not everyone feels that way.

Not so long ago, new college students were flooded with credit card applications and could easily apply for and receive a card without their parents even knowing about it. However, this situation changed dramatically after the passage of the Credit Card Accountability, Responsibility and Disclosure Act of 2009. This act made it more difficult for a student under 21 to get a credit card without his parents’ approval.

When questioning whether your college student might do well with a credit card, consider these points:

  1. Has he had any money management experience? Perhaps you’ve let him use one of your cards in the past. Maybe he received an allowance or worked at a part-time job during high school. These things teach your child about money—how to get it, save it, and use it as he’s maturing.
    • By the time he’s ready for college, you’ll know how he’s handled money in the past. Use that info when deciding whether he should go off to school with his own credit card.
  2. How does your college student handle receiving, budgeting, and spending money? By now, you have a decent idea about how your son or daughter approaches the whole money thing. Does he spend every cent right away or carefully save a certain percentage?
  3. What are the college’s arrangements for payments of dorm and meal costs? These facts can play a major role in the credit card decision.
    • If your kid will be living in a dorm, room and board is usually required to be paid in a lump sum beforehand, which you could do.
    • Most colleges now have a meal card arrangement, which means each dorm dweller is provided with a meal card that’s scanned to “pay for” meals. So, no credit card is really necessary.
  4. Think about making your college student an authorized user on your credit card account. A card is issued on your account in the student’s name. Your monthly statement will show your child’s purchases.
    • Designating your college student as an authorized user on your card account is great because you can set the monthly limit on his card. Some credit-card-issuing institutions even allow you to change your student’s monthly limits as you like.
    • For example, if you know next semester’s dorm charges are due in December, you can bump up the monthly limit for December to $2,000 or whatever is required. Select the lowest monthly limit possible.
    • Handling the credit card dilemma by making your child an authorized user on your account gives your student a chance to show his financial chops while you monitor and control the amount available for his spending.
  5. Consider a secured credit card. Especially good for college students, a secured credit card account requires a certain amount of collateral be placed on the account, like $300 to $500. This deposit is placed in a low-interest-bearing bond or money market where it will be held up to one year.
    • If your student shows he can pay monthly credit card bills on time consistently, he’ll eventually receive back the initial deposit. In essence, your kid is rewarded for responsible, consistent money management skills when using a secured credit card.

Take the above points into account when you’re trying to decide whether your college student would do well with a credit card. Again, it is the belief of PFME that credit cards should be avoided whenever possible, using debit cards when practical.

 

 

***A NOTE on Political Correctness: The use of the pronouns he and him, etc. are used in a gender neutral fashion. Placing he/she and him/her throughout an article makes it difficult to read and frankly looks stupid. If you are unaware of the past practice of using the male terms in a gender neutral manner or are offended by the lack of female pronouns, then I’m sorry for your lack of education and your P.C. attitude.**