While your college age student is getting an education in their chosen field, it’s important not to miss this opportunity for him or her to learn about responsible use of credit. This is the perfect time for students to establish a credit history with Mom and Dad still overseeing and guiding their financial decisions. While students may be able to get a cash loan at a local bank or even through their university book store, good credit habits can be learned through responsible credit card use. Just because your student has a credit card, that doesn’t mean he or she can go crazy – financially speaking.
One tool at parents’ disposal is the Credit Card Accountability, Responsibility and Disclosure (CARD) Act passed in 2009. The Act mandates that students younger than age 21 must demonstrate the financial ability to repay credit card debt and they must have a co-signer in order to get a credit card. However, this ACT is not foolproof: students sometimes use student loan availability to qualify or use a friend to co-sign. So it is still up to parents to be vigilant about student credit card debt.
Here are some strategies that can help:
· Get a secured credit card for your student.
While your college age student is getting an education in their chosen field, it’s important not to miss this opportunity for him or her to learn about responsible use of credit.
CC image courtesy of Images_of_Money
This type of card has a pre-paid credit limit. Make sure that the bank issuing the card reports to a credit agency so the student can build a credit history.
· Give students a credit card linked to the parents’ account. Be sure that the student card has a different number (for security purposes) and a maximum charge limit. Then the parent can keep tabs on the card by checking usage online.
· Make sure your student is paying off monthly charges every month and not racking up interest fees: This is one of the most valuable lessons you can teach your young adult child. Students over 21 may need two cards: one for routine charges that is paid off monthly and a second card for true emergencies so that these large balances can be paid off in a reasonable amount of time. This strategy keeps interest from accruing on routine purchases.
· Also keep tabs on other cards that your child may have, like debit cards linked to checking accounts and opt for overdraft protection on these cards.
· Finally, make sure that your student protects their credit card information and does not access accounts online in dorm rooms or other areas with unsecured Wi-Fi.
Ben Holland loves to write about finance and debt related issues. He enjoys investing, property and shares. Read more of his posts at Green Hills Blog.