Having The Credit Talk With Your College-Bound Kids

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Each year since 2005 I've been asked to speak to the seniors at The Westminster Schools in Atlanta. I speak to the 100 senior girls one week while the 100 senior boys are getting their fill of the venereal disease expert, and then the following week we swap. My time is spent trying to convey to them that for the next four years they're going to enter a world where they're going to be treated like adults, especially by the consumer credit system.

Here's my core message: you mess up on a quiz and you can make it up with the next quiz.  You mess up a test and you can make it up with the mid-term. You screw up the mid-term and hopefully you can make it up on the final exam. Point being, the pain of screwing up tests is fixable.

It doesn't work this way in the credit reporting and credit scoring worlds. If you miss a payment on a credit card bill, it takes seven years for it to disappear from your credit reports. If you mess up and not pay your final utility bill, the collection takes seven years to disappear from your credit reports. To put that in perspective… you'll have earned an undergraduate AND a law degree by the time the negative reporting has been removed.

The challenge is, having a fully successful credit talk with college-bound high school kids is like trying to explain to a non-parent how it is to have an infant… it's next to impossible.  That certainly doesn't mean you throw up your arms and leave your 18-year-old to learn about credit through trial and error.

There are some angles for getting your message across, successfully. Here are my suggestions.

Show, Don't Just Tell

I think trying to tell young kids that they should avoid credit cards is about as effective as telling them not to drink. In fact, I would suggest giving your kids a credit card a year or two before they're packing for college. It would certainly grab their attention and it gives you a controlled environment in which to teach them the right and wrong way to manage the card.  It's not unlike a learner's permit for a credit card.

Share Your Mistakes

I'm not so far removed from that group that I don't remember how I was. I didn't want to listen to anyone, especially people coming to talk about a boring topic like credit reports and credit scores. I certainly didn't care about my credit when I got to college, which is probably why I cheerfully filled out and returned that student credit card application waiting for me in my student mailbox.

I know a $300 credit limit isn't much but I sure did some damage! Thankfully, I was responsible enough to make the minimum payments. By the time I graduated, I had about $1,700 in credit card debt, which in the grand scheme of things isn't a lot unless you're unemployed and living at home with your parents. Brutal!

Bring Out the Job Card

I've been taking the “some employers look at credit reports” angle lately. It's 100% true and it's heavy artillery. Nothing shuts up a room full of high school kids faster than telling them that their impressive (and expensive) college degrees can be somewhat negated by a poor credit report caused by not paying their utility bills at the frat house.

Take It Seriously

I know what some of you are thinking: Are you serious? Not only am I very serious, I believe parents who pretend that their kids aren't going to try new things in college have their heads in the sand, which is dangerous.  Avoiding the credit card talk is no different than avoiding other critical topics like unprotected sex, “no means no”, drugs, tattoos, and drinking and driving.

Don't get me wrong: you don't have to be Cliff Huxtable to have this discussion. And you certainly don't have to convey your thoughts in a way that would win you an Emmy award. There is no script. There are no “best practices.” Nobody knows the best way to convince your kids that using credit while away at college is perfectly fine -- if you use it responsibly.

Just don't let them walk out that door without making an effort.

John Ulzheimer is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO and Equifax, John is the only recognized credit expert who actually comes from the credit industry. He is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling. Follow him on Twitter here.