How to Prepare Your College Student for Credit
College is meant to be a time for learning, but if we're being totally honest, it's much more than education and fraternizing. America's college graduating class of 2013 is entering the workforce with an average of $35,200 in debt, and more than half of those graduates either wish they'd done some things differently or entirely regret their college experience. The majority of that debt is school-related loans, but the average student still graduates with thousands of dollars in credit card debt, CNN reports.
While some parents and students may be leery of the debt accumulation that can come with access to a credit card or other credit accounts, college is actually a perfect time to take on this new form of responsibility. With that in mind, here are several ways parents can encourage their kids to work on their credit while in school.
Opening Their Own Credit Card Account — Or Adding Them to Yours
A credit card is one of the easiest and most foundational methods of building a credit history, for better or for worse. But before you encourage your child to go out and get their own American Express card, consider the risks in such a move. If your child struggles to manage their own finances, or is prone to making bad decisions, their own account may not make sense. And thanks to the Credit Card Act of 2009, individuals can't qualify for their own credit card until they're at least 21 years old.
For younger and less proven children, then, it might make more sense to add them as an authorized user to your own credit card account. That way, you can monitor their spending, and bail your kids out if and when they make poor decisions. But by keeping a close eye on this spending, parents should be able to stop bad habits as soon as they start. Once your child proves responsible using your card, they can graduate to their own account.
Don't Make Waves in the Credit Market
To some degree, it takes credit to build credit. Applying for credit accounts and limit increases is important, but only in small doses. Each application and limit increase request takes a small bite out of a person's credit score, and mounting attempts can only push good credit further out of reach.
Similarly, credit card accounts shouldn't be charged anywhere close to their max. High usage of credit limits can negatively affect credit scores. Consumers should keep their debt-to-credit ratio below 30 percent. Ideally, your child should try to pay the bill off in full each month.
Keep School Debt Costs to a Minimum
College is expensive, and tuition prices across the country only continue to rise. This typically leads to students taking out large student loans to cover their expenses. But student loan debt can also inhibit your child's credit score, so keeping costs low is ideal. Scholarships and grants are of real value, but outside of these free money sources, students should try to pay at least a portion of their tuition every semester.
Alternative options such as living off campus and not springing for the campus meal plan — which can add up in cost, especially when it isn't regularly used — can also lower school costs and make a big difference upon graduation.
Ultimately, students should seize upon their opportunity in college to not just earn an education, but to develop responsible habits that will carry into adulthood. And during this time in their lives, parents can still play a large role in helping them mature responsibly.
