As you get ready to send your child off to college for the first time or as a returning student, you may be thinking, “Should I send them with a credit card?” Credit cards can be a plus and a minus; they are a convenient way for your child to have the means to support their financial needs, be it books and supplies, or food and entertainment. The minus is that they can go overboard with spending.
Obtaining a credit card for a college student can teach them a lesson in financial responsibility and the use of credit. However, there are some important points you should know in order for this experience to work out well for both parent and student.
Have a conversation. Have a conversation about the credit card that you are giving your child, and explain what it is to be used for, as well as what the implications are if they misuse the card. This is also a good time to talk about what a credit score is and how important it is to build a good one.
Keep a low limit. The higher limit, the greater the opportunity for a compulsive purchase. One of the most important things a college student can do for their future is to begin to build their credit. A credit score will follow you for life; a good score will help you obtain loans for life’s essentials.
Read the entire statement. Don’t just breeze through it; look closely at it. It is a good way to know your child’s purchase patterns. Ask questions as it can be possible that your son or daughter’s credit card number is in the wrong hands and some purchases were made without authorization. Follow the credit card company’s dispute procedures and remove fraudulent charges.
Pay the entire amount. When the monthly statement arrives in the mail, pay the balance in full. Leaving a balance on the card will lower your credit score plus you pay an incurred interest on the balance.
Authorized User vs. Co-signer. Authorized user and co-signer arrangements are collective in nature; they carry a considerable amount of risk. It is important to have a clear understanding of what they are.
An authorized user is essentially a guest on your account. Your son or daughter will have charging privileges only, even if the bills are mailed to their address and are in their name. After all, the credit card company did not use their information to determine qualification and acceptance, they don’t own the account and aren’t legally responsible for the payments. The credit card company expects you, as the owner of the card, to pay the balance every month.
A co-signer is when you and your son or daughter is a joint cardholder and both of you are contractually obligated to keep the account in good standing. The credit card company views you and your child as equal partners and can file a lawsuit against either of you if the account goes into default. Once you co-sign, you can’t be released from the account. If the card is regularly paid off on time; your child is starting out their adult life with a positive credit rating.
When it comes to giving college student or a young adult a credit card it is best to sit down with your child and determine the best way of handling the issue of authorized user vs. co-signer.
Larry SmithConsumer Rights Attorney at SmithMarco, P.C.Larry P. Smith is a consumer attorney and the founder and Managing Partner at SmithMarco, P.C. He has tried dozens of consumer rights cases to verdict and has arbitrated over 700 cases. Additionally, he has amicably resolved over 3,000 consumer fraud, Fair Credit Reporting Act and Fair Debt Collection Practices Act cases via settlement. Mr. Smith has been a guest on multiple radio outlets including WLS and WGN in Chicago providing consumer advice. Mr. Smith also provides leadership and delivers lectures to the National Association of Consumer Advocates, The National Consumer Law Center, and the Chicago Bar Association. Latest posts by Larry Smith (see all)
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