Students And Credit Cards

One of the most valuable lessons a student can learn is how to maintain good credit. Often this critical life skill isn’t taught at schools and only indirectly is it taught at home. So, a student’s first credit card is a good opportunity for a parent and child to learn, review, and practice the fundamentals of good credit. Student credit cards offers are plentiful. The terms and conditions are typically the same as credit cards being offered to the general public. It is important to carefully review the types of cards available as some card issuers will have higher fees, penalties and interest rates on these cards. By and large students may struggle with excessive debt, yet do not appear to default in significant numbers, making these cards profitable for a card issuers. An adult always must temper the child’s enthusiasm for simple spending. At first a credit card seems like a big pile of money that is just begging to be spent, and that’s the wrong way to think of it. A parent has to consistently and gently remind a son or daughter of two things. One, the credit card isn’t a way to spend money that you don’t have. It is a convenience, and it is a way to deal with special situations and emergencies. It’s fairly typical for a parent to encourage a child to use the card right away, but a sober approach is important. You don’t want to condition your child to associate the card with excitement or reckless spending. When they use the card for the first time, encourage them to use it to buy a book for school; or a present for a friend; or a couple of new tires for the car they drive to school or work. This teaches the child to look at the practical and positive aspects of credit card use. Even if you intend to reimburse the child for these items, you have given them something much more valuable: a sober, responsible approach to credit card use. If the first thing they buy with their credit card is concert tickets, or an expensive pair of jeans at the mall, you’re starting them down the wrong path. While those things are expected purchases for a young person, the first things that they buy should be practical, modest necessities. Two, a credit card doesn’t exist in a vacuum. It is part of a person’s credit profile that follows them, and in some cases, dogs them through life. A young person often doesn’t know that the moment they enter into the world of credit they have a score – a credit score – a number associated with them that allows complete strangers to judge them and decide if they are a responsible adult. It affects their ability to get a car, buy a home, get a job, or start a business. While they are in high school these things may seem far off, but any negative mark on your credit can follow you around for seven to ten years. Young people don’t typically think about these things, but if credit is explained to them they often respond positively and responsibly. Most kids aren’t given that chance. They’re given the card, some congratulatory encouragement, and a push out the door. Establishing a good credit history at an early age can be quite and asset as the student matures and needs more significant measures of credit in the future to prosper. The interest rate range offered on credit cards may be between 14% and 19% depending on credit history. As a student matures that credit history established while in school can either be very good or bad. When it comes time for borrowing a few hundred thousand dollars for business or a home mortgage the interest rate range will be the equivalent of several hundred dollars of interest charges depending on that credit history. In the beginning a parent should give them the opportunity to understand the true purpose and the implications of their credit card, it’s time to practice the fundamentals of credit card use. Supervision from an adult is necessary! It isn’t a bad idea to tell your child that the most important thing about a credit card is making the payment on time. Repeat after me! Making the payment on time. Not the shopping, not the prestige, not the items that you buy, but making the payment on time. This is the part of credit that they must understand. The largest single contributing factor to maintaining good credit is making the payment on time. There are other things to remember. Try to avoid getting a cash advance. They are ridiculously expensive and often unbearable to pay off. Don’t carry a balance on your card of more than a third of your credit limit. Credit analysts want to see that you are managing your credit well, and if have a credit limit of $600 and keep your balance at or below $200, you are golden. If you can, especially when they are first learning, pay your balance due in full! This keeps the cost of having your card low because you don’t pay interest. If a child is fixated on the minimum payment due and not the total balance, that’s a poor credit fundamental. It’s a poor credit fundamental for adults, too. And always make the payment on time! They may get tired and annoyed hearing about it, but they’ll remember it fondly ten years later when they qualify for a mortgage.