The transition to college is a big step for both students and parents, especially if your child is attending college away from home.
In addition to the added stresses of a more rigorous academic program, college is usually the first time many young adults have ever lived on their own.
While most parents look for ways to help their teenagers become more independent, it’s not the same as living on your own, hundreds or thousands of miles away from home.
If you’re preparing to send your child off to college, there are many things to consider, but one of the most important is whether or not to give your child a credit card for college.
The Importance Of Building Credit
A good credit score is one of the most important assets that your college student will have. While it’s not a traditional asset, a high credit score can save you thousands of dollars through better access to loans, lower interest rates, and better housing opportunities down the road.
But it can be challenging to build credit when you’re just starting out. Without a good score, it can be hard to obtain the credit products you need to show that you can be responsible with credit. It’s a bit of a Catch-22 situation.
Authorized Users Vs. Their Own Card
When considering whether or not you should give your child a credit card for college, there are two different options to consider:
- Add them as an authorized user to your own card — when your child is an authorized user on your card, you can easily control and monitor their spending. They are not legally responsible for the debt (you are), but it still helps them build credit
- Help them apply for their own credit card — Helping your college student get their own card can give them a sense of ownership. But if they’re not careful, they may damage their credit by not using the card responsibly. Also, many young adults may not be able to qualify for a credit card on their own (see the next section)
How Credit Works For Young Adults
Decades ago, banks and other credit card issuers blanketed college campuses, marketing “easy” credit cards to students with promises of free T-shirts and pizza. The Credit Card Accountability Responsibility and Disclosure Act of 2009 (often referred to as the CARD Act) made it harder for young adults to qualify for credit cards on their own.
Under the CARD Act, adults between the ages of 18 and 21 can’t be approved for a card in their name unless they can verify that they have sufficient income on their own or have a cosigner. This can make it challenging for young adults to get their own card, unless it’s a “student” credit card or a secured credit card.
5 Reasons To Give Your Child A Credit Card For College
Here are five reasons to consider giving your child a credit card for college (either adding them as an authorized user or helping them get their own credit card):
- It can teach good financial habits
- It can help young adults build credit
- It’s an easier way to help pay for expenses than sending cash
- Having a credit card may be necessary for emergencies
- It may help you monitor your student’s spending and lead to teaching moments
Three Things To Watch Out For
While there are benefits to giving your child a credit card, there are a few things that you’ll want to keep an eye on. The first is making sure that they are using their card responsibly. This is easier to do if they are an authorized user on your card, since you’ll have access to their account information.
If they have their own credit card, note that many student credit cards come with low credit limits and higher than standard interest rates. You’ll also want to make sure your child understands how credit cards work and that credit cards don’t equate to “free money”.
The Bottom Line
Your credit is one of your most important assets, but it can be hard to establish when you are starting out. There are several good reasons to give your child a credit when they go away to college, and some downsides. Making sure that you stay involved with your child will be key – look for red flags or warning signs and be prepared to help keep them on the right financial path.
If you do decide to give your child a credit card for college, you can add them as an authorized user or help them get their own card. There are pros and cons to each option, so choose what’s best for your situation. No matter what you decide, regular contact with your child while they’re at college will help them make the transition to adulthood a bit smoother.