When the time comes I will advise my daughter about the responsible use of credit cards, when to use them or not to use them.
What are some reasons for a student to get a credit card?
It’s a great way for students to learn to use credit responsibly. They can get in the habit of reading monthly statements, which they’ll see more of as they get older. They can get in the habit of paying the balance off every month. That, in turn, will establish a credit history.
They can also begin to learn terms common to the language of credit, including annual percentage rate, variable interest rate, authorized user, credit line, grace period and minimum payment.
It’s best for a college student to limit themselves to one credit card. Those years are so busy, full of distractions, study hours and socializing. That makes it difficult to keep track of multiple credit card accounts.
That said, if you have concerns about the likelihood your child will manage a credit card responsibly, you may want to limit their exposure to debt they can’t quickly repay.
One way they can have the convenience of plastic without a credit card is to set up a checking account linked to a debit card. They will still be able to check balances on their phone before spending money and $300 in a bank account is more manageable for some young adults than a credit card with a $1,000 limit.
A student can also consider a secured card, but they should be aware of the associated fees. How does the monthly fee compare to an annual percentage rate they might get without a secured balance? Many times there is an annual fee, so that should be counted as part of the cost of using a secured card.
Going through the exercise of calculating the real cost of a secured card versus the cost of an unsecured card is a good way for a student to learn about the cost of short term loans – which is how they should think about a charge to a credit card.
Each child is different, so the parent is in the best position to help them decide what will work best in each situation. The ideal is to help them start at the right spot and gradually step away to let them take responsibility.