Before your baby flies the coup headed for college, you’re probably considering tucking a credit card into his suitcase to cover incidentals, emergency expenses, or even a pizza now and then. But what’s the best card option for impending co-eds?
We’ve covered all the basics of the most popular options so you’re sure to ace this course!
Authorized user
You can add your child to an existing credit card account as an authorized user. A benefit of this is your child begins building a credit history, as all activity is reported in both the parent’s name and the student’s name. And you can track the account and your child’s spending.
Since you’re the account holder, you can also remove your child at will.
But, there’s a downside. Should his spending get out of hand and your kid blow his budget, you’re 100 percent on the hook for all charges incurred.
Secured cards
A secured credit card is a popular choice among students because the required security deposit limits the exposure to a mountain of debt. The minimum is often $200, which acts as the card’s credit limit, too. So if the student defaults on the card and fails to pay, the credit card company takes the security deposit as collateral—just like a security deposit when renting an apartment.
The catch to this card is that you need to do your homework before diving in, as not all secured cards are equal. Since a goal is to build credit, make sure the secured card reports activity to all three of the credit reporting agencies.
Parents co-signing for a card
The CARD Act limits consumers under the age of 21 ability to obtain a credit card on their own unless they can demonstrate ability to pay (read: they have a steady job or source or verifiable income) or have a co-signer. So parents often step in and co-sign for a card to give their child the chance to begin establishing credit in his own name.
This gives the student more autonomy; usually the bill goes to the student and the parent doesn’t necessarily have access to the account information unless they’ve established that between themselves.
But, like adding a co-ed as an authorized user, co-signing leaves you on the hook and leaves your credit score exposed if your child racks up a huge pile of debt he can’t pay, so it’s usually not a good idea.
College kids getting their own credit card
If your student can demonstrate proof of income that exceeds expenses he may qualify for a credit card of his own—no co-signer needed. This option puts all the credit score-related benefits risk on the student who may lack the emotional maturity to discern what is a good financial choice. The student may need some guidance to avoid falling into a hole of debt he can’t climb out of.
Regardless of the type of plastic you opt for, what’s most important is teaching a collegiate how to set a budget for monthly spending and for parents to check in to see how the child is doing with his budget and spending.
