Help your college student build credit responsibly
If your high school grad is headed off to college in the fall, now is the perfect time to start teaching her about credit. Thanks to the CARD Act of 2009, students won’t be bombarded by credit card marketing efforts the moment they step onto campus. In fact, unless they can show proof of income, they’ll need an adult to co-sign for their credit cards until they turn 21. That’s why it’s crucial for you to help them learn responsible credit building now. Here are five hands on steps you can use to teach tangible lessons.
1. Review their credit with them.
Unfortunately, teens can make an attractive target for identity thieves, since they have a clean slate where credit is concerned. To make sure that no fraudulent activity has taken place under your child’s name, request free copies of their credit reports from annualcreditreport.com. (Parents can do this for minor children; if your student is over 18, he should do so himself.)
2. Teach them about budgeting and paying bills on time.
Paying bills on time won’t technically build your child’s credit score. Not paying, though, will show up negatively on her credit report. Help your student learn good budgeting and bill paying habits now by giving her the responsibility of paying her own cell phone bill or housing utilities.
3. Make them an authorized user on your card.
Adding your teen as an authorized user on your card can teach him when it’s appropriate to charge expenses. Since he’s not the one receiving the bill—you are—you’ll need to set the ground rules for the card’s use.
As an authorized user, your teen will benefit from getting to use your good credit, but won’t really demonstrate the history of on-time bill payments that a lender looks for, since your teen isn’t directly responsible for the bill.
4. Encourage them to get a part-time job.
If your teen wants her own credit card—especially if you’re not entirely comfortable co-signing for her—she’ll need to show proof of income to qualify. That means she’ll need to search for a part-time job to make some extra money after class. Getting a job can also help her keep spending under control so she doesn’t take out more student loans than necessary.
5. Co-sign for a card in their name.
As a parent, you know your children’s money habits. Once they’re on the path to responsible credit building, it may be time to co-sign for them so that they can have a card in their own name. Especially if they’re going away from home for the first time, you may feel better knowing that they’ll have access to emergency funds if need be (though you’ll also want them to think through how they’ll pay back any emergency credit card use).
If you decide to co-sign for your student, we recommend that you come in together to apply. That way a loan officer can address all of your questions at once, so both you and your student fully understand the process and what it means to have a credit card.