Credit cards can give college kids a real education
I f your kids are off to college, have you had "the talk?"
You know, how temptation and momentarily bad choices can haunt them for years?
No, I'm not talking about majoring in art history -- I'm talking about credit cards.
With no regular income or fixed address, a college student would seem about as credit-worthy as a stray cat. The feline, in fact, might be a better risk, since I've never known alley cats to borrow $20,000 in Stafford loans to study medieval poetry.
Students rack up credit debt
But credit-card companies love college kids. They sign students up early because they'll be loyal customers for years, especially when they start making money after graduation. Plus, if they get into trouble, the Bank of Mom and Dad can bail them out.
According to student loan agency Nellie Mae, 76 percent of undergraduate students had credit cards at the beginning of the 2004 school year, with 79 percent carrying an average balance of $2,169.
Kids are inundated with credit card offers on campus, often tempted with a free T-shirt or other trinkets for filling out an application. Some credit issuers don't require co-signers, even if the students are under 18.
In some cases, this turns out to be as big a disaster as you'd expect: unaccustomed to handling credit, the kids rack up debt into the tens of thousands. Some students cut back on classes or even drop out so they can work to pay their credit card bills.
Establish good credit
But properly handled, college credit cards can be a good move.
The primary benefit is that its much easier to get credit in college than after graduation, when students turn into entry-level wage-earners. Using one or two cards to establish a good credit rating makes it easier to rent an apartment and get cheaper insurance and auto loans after graduation. Plus, more employers are using credit scores to screen job applicants.
Since the kids are going to get credit with or without you, agree now on just how your student will handle his or her plastic:
Agree to no more than one or two major cards with low limits -- no more than $1,000.
Have them get the cards in their own names. Adding Missy or Junior as an authorized user on your account won't help them build their own credit history.
Don't co-sign. That just tangles up your credit with theirs.
To monitor spending and payment activity, set up online accounts where you share the user name and password. That way you know if they've upped their limit or gone past due on the bill.
Discuss the importance of paying on time and what you will -- and won't -- do if they run into trouble.
While small payments on time build credit, push students to pay more than the minimum. Students think they can easily pay off their cards when they get a job, but forget they'll also bear all their own living expenses.
If the card is "just for emergencies," point out that no emergency involves anything they can eat, drink or wear.
Source: http://www.detnews.com/apps/pbcs.dll/article?AID=/20060805/OPINION03/608050354/1369
You know, how temptation and momentarily bad choices can haunt them for years?
No, I'm not talking about majoring in art history -- I'm talking about credit cards.
With no regular income or fixed address, a college student would seem about as credit-worthy as a stray cat. The feline, in fact, might be a better risk, since I've never known alley cats to borrow $20,000 in Stafford loans to study medieval poetry.
Students rack up credit debt
But credit-card companies love college kids. They sign students up early because they'll be loyal customers for years, especially when they start making money after graduation. Plus, if they get into trouble, the Bank of Mom and Dad can bail them out.
According to student loan agency Nellie Mae, 76 percent of undergraduate students had credit cards at the beginning of the 2004 school year, with 79 percent carrying an average balance of $2,169.
Kids are inundated with credit card offers on campus, often tempted with a free T-shirt or other trinkets for filling out an application. Some credit issuers don't require co-signers, even if the students are under 18.
In some cases, this turns out to be as big a disaster as you'd expect: unaccustomed to handling credit, the kids rack up debt into the tens of thousands. Some students cut back on classes or even drop out so they can work to pay their credit card bills.
Establish good credit
But properly handled, college credit cards can be a good move.
The primary benefit is that its much easier to get credit in college than after graduation, when students turn into entry-level wage-earners. Using one or two cards to establish a good credit rating makes it easier to rent an apartment and get cheaper insurance and auto loans after graduation. Plus, more employers are using credit scores to screen job applicants.
Since the kids are going to get credit with or without you, agree now on just how your student will handle his or her plastic:
Agree to no more than one or two major cards with low limits -- no more than $1,000.
Have them get the cards in their own names. Adding Missy or Junior as an authorized user on your account won't help them build their own credit history.
Don't co-sign. That just tangles up your credit with theirs.
To monitor spending and payment activity, set up online accounts where you share the user name and password. That way you know if they've upped their limit or gone past due on the bill.
Discuss the importance of paying on time and what you will -- and won't -- do if they run into trouble.
While small payments on time build credit, push students to pay more than the minimum. Students think they can easily pay off their cards when they get a job, but forget they'll also bear all their own living expenses.
If the card is "just for emergencies," point out that no emergency involves anything they can eat, drink or wear.
Source: http://www.detnews.com/apps/pbcs.dll/article?AID=/20060805/OPINION03/608050354/1369
posted by bradley at 6:50 PM
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