It wasn't long ago that college students went back to school and in addition to buying books and sweatshirts on campus, they were offered credit cards--and the chance to plunge into debt before they even began earning an income. Thanks to the Card Act of 2009, credit card issuers are no longer allowed to advertise on campus, or offer the promotions that often enticed young people to use the cards.
But there are still potential pitfalls. Credit cards, like cell phones, are ubiquitous; every teen "needs" one. And just as with cell phones and internet access, it is smarter for parents to use these as teaching tools, monitor their use, and protect their teens from abusing credit, while explaining how valuable credit can be.
Here are five ways to get started.
1. Start by checking your teen's credit report online with her. There should be no credit at first - unless the child's social security number has been used fraudulently. Show her that her use of the credit card will be reported to the credit bureaus. Explain that anything bad, such as late payments, will stay on her credit report for 7 years. That could impact her in many ways, including the cost of auto insurance, a landlord's decision on whether to rent an apartment to her, or even whether she gets a job, since employers often pull credit reports. Go to www.annualcreditreport.com to get the report.
2. Add your teen to your card as an authorized user. Open a new credit card account (with a low credit limit) with your teen. Then be sure to set up online access so the two of you can regularly review spending online. Make sure the credit usage is being reported under her Social Security number as well as your own. You will have the incentive to monitor her spending - because your credit could be impacted!
3. Get a student credit card. Go to this link on Bankrate.com for their report student credit cards. You'll find that major card issuers, including Discover, Capital One, and Citibank, have created cards especially for students with rewards features that include free FICO credit scores, and - in the case of Discover, a $20 cash-back feature for each year the student's grade point average is above 3.0.
4. Get a "secured card." Many card issuers offer these VISA and MasterCards, which require a savings deposit in the issuing bank. The credit limit is the amount of the savings deposit. Use the card regularly, and pay in full and on time, and those credit habits will be reported to the credit bureau, starting to build a good credit report. Secured cards can be used like any other card, allowing you to withdraw cash at ATMs or pay for purchases.
5. Consider VisaBuxx - the card built for young people and parents. The card is linked to the parent's account so it can automatically be refilled when the money runs out! Meanwhile, both parent and student can instantly view all transactions online. So if the student calls home for a refill because books were too expensive, Mom can see that a lot of money went to the campus bar and grill! Go to www.VisaBuxx.com for links to issuing banks.
Consumer credit expert, Gerri Detweiler, of Credit.com has some excellent tips for choosing a student credit card, and this year's list of the best student credit cards at this link. And students can also get their credit score free at Credit.com.
And a final thought, now that you've enabled your teen or college student to use credit and start to manage their own financial future: Let them learn the whole lesson! Don't be quick to bail them out when they've reached their limit. Suggest they get a part-time job to earn extra money to pay down the balance. If you kids learn those lessons early - when they are painful but less costly - they will have a much easier time in later life. And that's The Savage Truth.