Giving your college student a credit card is one way to let them grow their financial wings. They gain independence and become empowered to make their own spending decisions. But a credit card carries risks too. How do you help your college student use credit cards the right way?
- Do you use all your subscriptions? Do you have a gym membership? Do you use it? Can you afford it?
- Is the streaming or cable service worth it, or can you get by with a smaller package?
- Are you paying extra for bandwidth and other mobile/internet services that you don’t use?
- Are you paying maintenance charges and other fees at your bank? Do you routinely use out-of-network ATMs?
- Are there ways to reduce your housing costs? Can you move to a more affordable home? Or look for a roommate? If you own your home and have a room to spare or the basement is free, consider renting it out. Or turn the extra space into an Airbnb rental.
Should Your College Student Have a Credit Card?
There are many excellent reasons to give your college student a credit card.
- Carrying a credit card is safer than cash. If their credit card is stolen or compromised, it can be reported, and most fraudulent charges reversed.
- A credit card helps your college student build their credit history. Making manageable charges to the card, demonstrates financial responsibility which will translate into greater access to financial products in the future.
- A rewards credit card can result in significant savings at restaurants, gas stations, the grocery store, rideshares, and other amenities that your college student will need.
- Your college student can cover emergency expenses right away.
7 Tips to Help Your College Student Use Credit Cards the Right Way
1.Begin Before College
Begin building money management skills while your child is still in high school. Teach them the fundamentals of a bank account: deposits, withdrawals, and overdrafts. Give them a debit card and explain how their debit card limit is based on the amount of money they keep in their account.
2. Explain Credit Score
Young adults need real-life examples. Explain to them that a poor credit score not only results in the most expensive financing, but even their landlord and potential employer will look at their credit score. How they use their credit card could cost them their dream job. Share a copy of your credit report and explain how the score is calculated.
3. Track Expenses with Fintech Apps
Download an expense tracking app to help them see how much is going on the credit card, the balance in their checking account, and how much they are spending every day.
4. Stick to a Budget by Separating Needs from Wants
Explain how easy it is to fall into debt when you don’t stick to a budget and buy everything you want. Talk about the FOMO syndrome and the dangers of online shopping. Help them create a strategy to avoid impulse buying or using their credit card to impress their friends.
5. Keep the Balance to Zero
Explain the importance of paying off the balance due on their credit card each month. Talk about the trap of debt due to high balances. Set up a plan to use the credit card to make small payments, such as covering movie streaming subscriptions, their cell phone bill, and the occasional take-out such as pizza. The monthly balance will be manageable, and they can start to build a good credit history.
6. Warn Against Applying for Multiple Credit Cards
As a college student they are going to run into credit card promos all over campus. Explain that one credit card at this point in their life is enough. The more credit cards, the greater the risk of credit card debt. Also, every time they apply for a new credit card, their credit score suffers.
7. Agree on a Check-In Schedule
You want your college student to have financial freedom, but at the same time, you need to save them from the pitfalls of credit card debt. Set a regular schedule to check-in and talk about how things are going.
- What is the balance on the credit card?
- What is their plan for paying the upcoming bill?
Set clear guidelines about what happens if they over-extend themselves.
- Will you help, or will they be responsible?
- Will certain credit card purchases be covered by you, such as textbooks and other supplies?
With patience, it’s easy to help your college student use credit cards the right way. The most important thing is to set clear expectations and keep the lines of communication open.