As college students prepare for the deluge of credit card offers on campus, parents need to learn some tips on how to make sure their kids get the right cards.
Parents may not think their 18-year-olds are ready to handle their own credit card, but card issuers disagree. They realize they can count on parents to bail out students who run up balances or fall behind on payments, underscoring the importance of helping kids choose the right card.
“When they say ‘do you want to apply for a credit card,?’ I say ‘sure,’” said Rutgers student Eleanor Scott. “So I have a couple of store credit cards and a Visa.”
College students have more choices than ever when it comes to choosing a credit card.
Card issuers no longer require a parent's approval before issuing a card to a student who has no independent source of income.
In fact, marketing to college students has become a billion-dollar business — with familiar incentives to entice first-time users.
“Free t-shirts, free umbrellas, free stuff,” said Leila Ostad, another Rutgers student. “A lot of times, I don't really sign up for them, but I see a lot of people there and they think they're getting free stuff. In reality, they're signing up for a lot more than that.
Some alternatives to credit cards are debit or prepaid cards. These options prevent accumulating debt, and parents can help fund the account.
Having a student use a parent's credit card is probably the best way to keep tabs on spending habits, but most students want a card in their own name.
“I'm trying to get a credit card right now, but I don't know what the best one would be to get and I don't want to mess up my credit history,” said Rutgers student Jorge Ball.
An unsecured credit card could blemish credit history pretty quickly, as higher credit limits often lead to debt accumulation.
A secured credit card may be the better option. These cards require a security deposit, say $500. The credit line is limited to the deposit amount, so it is harder to rack up debt.
Barbara O'Neill, a Rutgers professor and certified financial planner, advises researching cards with the lowest interest rates and fees, and suggests looking at the disclosure information.
“Credit cards are required to provide a table that shows what the late fees are, the overlimit fees and the annual percentage rate and go over that with your college student and make them aware of what these fees are and what the credit card could cost them if they don't pay their bills in a timely manner,” O'Neill said.
For more information on student credit cards, log onto www.cardtrak.com and go to “Find a card” on the Web site. It is designed to help find a card that is right for all involved.