When I was in college, I once applied for a credit card in exchange for a sandwich.
It was 2005, and the bank had a booth set up right outside the campus grocery store. When I walked by, the salesperson asked me if I wanted to get a credit card for a free Subway foot long. There was no annual fee, so I thought, why not? I got the card and the sandwich, feeling as though I had just hit the jackpot. That year, my annual income was $3,000.
My parents taught me about the value of building a good credit history growing up, and I knew how important it was to stay on top of my payments and watch my spending. Still, I made a few mistakes along the way. It’s easy to overspend or miss due dates when you’re new to credit, as many of us know. That’s exactly why a parent’s guidance and financial support can be so important in those early years.
Helping your kids get credit cards in college will empower them. It can help them build credit, learn to manage their money, and cover emergency expenses. And although today’s credit card regulations help prevent the worst situations — it’s now illegal for issuers to market credit cards near or on college campuses with incentives like sandwiches, for example — it’s ultimately up to students and parents to protect their bottom lines.
Here’s how you can help your college students navigate the world of credit cards.
Talk to your kids about credit
Your kids probably know about the value of studying hard, getting good grades and saving money, but the topic of building credit might be brand new. Whether they’re going to college for the first time, or returning for another year, it’s important that they know how this works before getting a student credit card. So tell them about when you got your first credit card, and talk about how FICO scores work — or learn about it together. Share your embarrassing credit mistakes, so your kids know what not to do. Remind them that while they’re in college, building credit with their credit card is the main goal, not earning rewards or getting a higher credit limit.
Talk about how building good credit can help them save on car insurance premiums, cell phone plans, mortgages and auto loans for years to come. Let them know how it will make it easier for them to rent apartments, get jobs and even start their own businesses someday. The sooner they start building a positive credit history, the sooner they’ll start saving money. That benefits both you and your kids.
A credit card can help your college students out in other ways, of course. They’ll be able to “float” balances interest-free for about a month after the bill is posted, earn rewards and cover emergency costs such as car repairs and short-notice travel. These advantages are useful, but in college, when you’re building your financial life from the ground up, they shouldn’t be the main concern. College is stressful enough without adding credit card debt to the mix.
Offer your financial support
Forget Wii consoles and iPhones: The best gift you can give your college-bound kids these days is good credit.
This is especially true now that credit card application requirements have become more stringent. If your kids want to get cards in their own names, they’ll need to meet an issuer’s minimum income requirements. And if they’re under 21, as most college students are, they can report only their independent income — money from their part-time jobs, grants or scholarships. That can make it tough for them to qualify for a card on their own. Here’s where you can help:
Offer to co-sign for a credit card. Some credit cards give applicants the option of applying with a co-signer if they don’t meet the application requirements on their own. By co-signing for your college students, you’re putting your credit on the line for them. If they miss a payment, it won’t just hurt them — it’ll hurt you, too. If you foresee that happening, you might want to go with a different option. But if you trust your students to pay on time, every time, co-signing can be an easy way to help them build credit. Once they meet the requirements on their own, you can take your name off the account and let your kiddos fly solo.
Add your kids as authorized users. If you already have good credit, you can pass it on to your children by making them authorized users on your credit cards. Your kids’ scores will benefit as long as your issuer reports authorized user activity to the credit bureaus every month.
As the primary cardholder, you’ll still be responsible for paying the bills for your credit card. So before giving them cards linked to your account, agree upon spending limits and set expectations about how the card should be used.
Encourage better habits
You won’t be able to shield your kids from every financial mistake they might make, but you can encourage them to make better credit card decisions. Here’s how:
Praise good work. If your college students are doing a great job keeping their spending in check, or paying their credit card bill in full and on time every month, let them know. By paying their full bill every month on time, they’ll avoid late fees and interest charges. And by keeping their balances low, they’ll be able to boost their credit and sock away more money in their emergency funds. Your encouragement can motivate them to keep up the good work.
Ask, “How can I help?” If your kids slip up and forget a payment or charge too much, be patient and direct. Ask what happened, and see if there’s a way you can help them fix the problem and learn from it, maybe by offering to pay part of the bills, working out budgets together, or setting up autopay on their accounts. Give your kids the benefit of the doubt, but be prepared to use tough love. If they keep making costly mistakes, consider taking a break from credit cards to work on the underlying problems.
Keep the conversation going. Forward helpful articles about credit card tips to your kids’ via email, or tuck clippings into care packages. If one of your college students’ favorite late-night comedy shows features a segment about credit, à la “Last Week Tonight With John Oliver,” send it to them and ask what they think. By bringing up credit in day-to-day conversation, your kids will feel more comfortable coming to you with credit card questions when they arise.
Some things haven’t changed
In the end, your kids’ credit card issuer can’t force them to pay their account in full and on time every month, or stop them from spending too much — and neither can you. The toughest credit card regulations might protect your college students from signing up for credit cards just for the free sandwich, but it won’t make them financially invincible.
As much as you want to, you might not be able to make your kids’ experience with credit cards in college a perfect one. Mistakes happen. That’s life.
But by supporting your college students in their first venture into the world of credit, you can make their experience with credit cards positive. The work starts in the undergraduate years, but the benefits last far beyond graduation.
Sean McQuay is a credit cards expert at NerdWallet. A former strategist with Visa, McQuay now helps consumers use their credit cards more effectively. If you have a question about credit, shoot him an email at email@example.com. The answer might show up in a future column.