Eagerness isn’t the word to describe college freshmen and credit cards. In fact, some young adults can’t wait to turn 18 and apply for a credit card. You may discourage the use of credit cards or relate credit card horror stories. But at the end of the day, you can’t stop your child from applying for his own credit card.
Even if you hate the ideal of your 18-year-old having his own credit card account, there is no denying the benefits of plastic. Responsible use helps your young adult establish credit and build a credit history at an early age, which can work to his advantage when he applies for car loans or mortgages after school.
Rather than forbid the use of credit cards, talk to your college freshman before he heads off to school and drill the importance of responsible use.
Compare Credit Card Offers
Each credit card is unique, and if your freshman isn’t careful, he can get trapped in a bad credit card deal. Granted, his options are few with no prior or a limited credit history. But many credit cards for newcomers offer a low interest rate and a very low annual fee, such as the Capital One Cash Rewards for Newcomers and the Capital One Platinum credit card. Encourage him to take his time and research different credit cards and their features before submitting an application.
Pre-Paid Credit Cards
A pre-paid credit card won’t help your freshman build a credit history, but these credit cards can teach your child how to manage credit and budget his money. Thus helping him avoid common credit mistakes once he applies for a traditional credit card. Your child deposits a certain amount in his pre-paid account and he can only spend what’s available in this account. Strike a deal with your child. Ask him to test the waters with a pre-paid credit card for at least a year, and then apply for a traditional credit card.
Establish a Spending Budget
With traditional credit cards, excessive use can result in major debt and a low credit score. Explain the relationship between balances and credit scores. Credit card balances make up 30 percent of credit scores, and for your freshman to build a good credit score, he must keep his balances within a responsible range. Highlight the importance of paying balances in full each month and only charging what he can afford to pay within a given month.
Apply For Only One Card
In all likelihood, your freshman doesn’t need more than one credit card. Some young adults do not understand how credit applications or inquiries affect their FICO scores. Each inquiry will reduce his score, and if he starts applying for multiple credit cards, he can damage his rating.
Paying Statements on Time
Late payments and skipped payments are quick ways to damage a credit score. Explain to your freshman the importance of timely payments and encourage him to send his credit card payments several days before the due date, as well as set up reminders on his phone or computer. If problems occur and he can’t pay by the due date, tell him to contact his creditor immediately to discuss other payment options.