College kids and credit - what to expect and advice for your child.
My daughter just started her second semester of college and is already being contacted by credit card companies wanting to issue her a credit card. I'm worried that if she takes these cards she will get into debt that she's not able to handle. What should my advice be to her? Will opening a credit card help or hurt her future credit?
Santa Fe, New Mexico
It's common for credit card companies to target college students; after all, they're the credit consumers of the future. College students and other people with limited credit histories can benefit from accepting these offers as long as they practice responsible credit management. Using her first credit card responsibly can help your daughter establish her credit history and learn the basics of credit management.
Often, a person's first credit card can be both a blessing and a curse. It's a wonderful convenience to be able to make purchases without cash, but it can also damage one's credit standing if used irresponsibly. Here's some advice to pass along to your daughter:
One card is sufficient - college students often receive many credit card offers, but it's best to start with just one card. If she finds that the credit limit is too low, she shouldn't just open a new card.Instead, tell your daughter to call her credit card company and request a credit line increase. She may need to demonstrate responsible use of her card before they will grant a line increase, but that's not a bad thing. Her goal should be to prove that she's a low risk borrower who will handle additional credit just as responsibly.
Be extra responsible - always paying her credit card bill on time is the most important thing your daughter can do for her credit standing. Since your daughter has a short and limited credit history, just one late payment will hurt her credit status and several late payments can substantially set back her credit standing.
Keep low balances - your daughter may not need to worry about her FICO® score for a few more years, but her credit standing will benefit if she establishes the early habit of using only a small portion of her available credit. Having credit doesn't mean having to use it all!
Learn about credit - the best time to learn about credit and credit scores is before she inadvertently makes mistakes. This knowledge will help her make the right decisions with regard to her credit. Reading this free booklet about FICO scores is a great start.
It can be scary when your children first take on adult responsibilities like managing credit. Hopefully, you can help her follow this advice and her first credit card will provide the foundation for a good credit history. By taking her first experience with credit seriously, and using her credit responsibly, she'll find that credit can be a powerful tool while she's in college and for many years to come.