As you help your child pack for College, should you be including a Credit Card?

As August rolls around and we enjoy the last few weeks of summer, we also start our Back to School shopping and preparations.  Mike and Jack will both be sending sons off to their first year of college in August.  My daughter Chelsey, who will be a junior in college this year, is heading to London for a semester abroad in September.  Many of our clients will be sending their children to college this fall as well, so student credit cards are something we should think about now.

My daughter, who attends college in Boston, has had a credit card for the past two years.  She has been very responsible with her credit card.  I helped her get a card with a very low credit limit: $250.  I pay the bill so the statement comes to me, which I like because I get to see exactly what she is purchasing each month.  Since the card is in her name she is building credit, even though I’m paying the bill.

This year we have a new issue: Chelsey will be in London and she needs a new credit card.  The one she has now charges Foreign Transaction Fees.  I started doing a search for student credit cards that do not charge Foreign Transaction Fees, and I found a possibility in Kiplinger’s Magazine.  Capital One offers credit cards that don’t charge Foreign Transaction Fees, and they have a Student Rewards Credit Card.   Capital One has a good reputation for student and ‘beginner’ credit cards.  Chelsey needs to apply for the card, so we haven’t used it yet and I can’t recommend it yet, but it offers 1% cash back on all purchases and looks like a good deal.

Choosing the right card is important, but there is a bigger issue here.  Is your child responsible and mature enough for a credit card?  Will you pay the bill or do you expect them to pay the credit card bill?  (Keep in mind that if they pay the bill they need to make sure it’s paid on time, or else their credit will be negatively affected.)  In my experience, I prefer my child have a credit card that I help them choose and that I monitor.  I have friends whose children signed up for credit cards at college and ran up huge credit card bills because their parents were not involved in the process.

Regardless of whether you want your child to have a credit card or not, I do recommend you speak to your teen about credit cards.  Many credit card companies market and heavily promote to teens on college campuses.  It is way too easy for college-aged children to fall into the ‘buy now, pay later’ trap and run up excessive debt on non-essential items.  It is important that you educate your teen about the benefits and potential hazards of credit cards.

If you are looking for a Student Credit Card, there are websites you can visit that compare various credit cards so you can find one that fits your child’s situation.  Make sure you get a credit card that does not charge an annual fee and teach your child to pay their credit card in full each month so that they do not pay interest.  A credit card that offers rewards should be considered.

If you have any questions about this topic, please contact your Financial Strategist.