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How should you give your college student credit?

Tuesday, July 17, 2012 at 11:59:30 AM

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If you have a son or daughter who is about to go off to college, whether they'll be freshmen or seniors, you probably want to do something to help them out, particularly when it comes to their finances.

For many young adults, one of the hardest parts about going off to college is adjusting to the basic financial constraints under which they will typically find themselves, and often, you might think that you can help them out somewhat with a credit card. But the question you'll have to ask yourself before you proceed is exactly what step will be best for both you and your college-bound kid, according to a report from The Associated Press.

There is no shortage of options when it comes to selecting a credit card offer when your kids go off to college. You can add them as an authorized user on one of your existing accounts, help them open an account of their own, or set them up with a debit card that will allow them to have an account in their own name. Which strategy will work best for all involved depends a lot on your personal situation.

Adding an authorized user

This may be simplest for you because it doesn't require you to find and compare a number of credit card offers, but it can also have some drawbacks for both you and your child. For one thing, you will be just as responsible for any charges they make on the account as they are, meaning that if they mismanage their spending, you could end up footing the bill.

Further, this will not necessarily allow your child to build their own borrowing history, which will limit their options for finding a credit card of their own when they are financially prepared to do so.

Co-signing

This will not be unlike adding your kid as an authorized user because it will leave you equally responsible for all debt racked up on the card, but will carry the benefit of helping them build their own borrowing history, which may give them access to more beneficial credit card applications in the future.

Getting a secured credit card

You may have heard of this type of card, and wondered if it would be the best credit card for your college kid, and it could be if managed right. The distinction between this type of card and others is that it requires a deposit before opening that will set the account's total credit limit. Usually, though, this is only a few hundred dollars, meaning that it can be easier to keep under control because significant debts can't be racked up. However, that also means it can be easier to max out, and therefore requires more careful management overall.

Prepaid cards

Finally, you might think a prepaid debit card is the best way to go when helping your college-bound kid manage their finances. But you should be aware that this kind of account won't allow them to build a credit history, and may end up costing them money over the course of a school year because of all the various fees associated with them.

Whenever you're looking for any kind of credit card program, it's always a good idea to figure out the ways your college student might end up using it day-to-day, and then search for credit card applications online that will help them to maximize the benefits an account provides based on those habits.

So which is the right credit card program for me and my student?

If you are most concerned with teaching your college student life skills and money management any three of these options can apply. If your own credit rating and peace of mind are most important, a secured credit card is a better way to do so than cosigning on a credit card for your student or making them an authorized user on your credit card. For helping your child build their own credit without putting your own at risk, a secured card is a good place to start.



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