The Credit Card Dilemma - Should Your College Kid Have a Credit Card?

posted Kari Gronoski 10/28/2015 in Banking

It is possibly quite alarming for some of you to think about handing over a credit card to your college-age child. The image of monstrous debt looming over them for a lifetime comes to mind. However, if you’ve ever gotten a car loan or even a cell phone plan, you know how crucial credit has become in our lives. And unfortunately, credit is not one of the easiest things to build (and destroying it is even easier). You need credit to get the loan, but you can’t get credit without having the loan. So how do you break the catch-22?

The solution is simple: a credit card. But helping your child get a credit card doesn’t have to be a pass for them to go hog wild. While establishing credit is important, maintaining it is imperative. Over the last eight years, I’ve seen everything from young professionals with no credit not being able to qualify for a home loan to students with so much credit card debt they had done irreparable damage to their credit score. So when my daughter set off for college, I knew I needed to give her the right tools while preparing her for the responsibility. Below are the basics every child should know before swiping any plastic.
  1. No, your student loans don’t help you get the credit you need while in college. Unfortunately to build your credit score, you need to have a loan and prove you can pay it back. As a student, your loans are deferred until after graduation so they only show up on a credit report as debt without giving you the benefit of building your credit.
  2. Your credit score can’t be bought, but it affects everything you’ll buy. When you want to buy a car or home, your credit score will be an important determining factor on whether you’ll get a loan. Your credit score is actually even starting to be a factor in non-loan related things like insurance, cell phone plans, and even getting a job! (So yeah, it’s important.)
  3. Use your credit card like your debit card. You wouldn’t go buy things you couldn’t afford with your debit card so don’t do it with your credit card. Again, building credit has more to do with demonstrating you can pay it back and less to do with the debt. Use it for things you’d buy anyway like books, gas, and groceries.
  4. Pay the balance in full, every month. While only a portion of your debt will be required at the end of the month, or a minimum payment, paying the full amount back will help ensure you don’t get caught with a large sum that you can’t pay back. (It will also ensure you don’t pay any interest!)
  5. Be picky! There are hundreds of credit cards available out there, and there is no one size fits all option. When starting out, it may be best to choose one that has no annual fee or a smaller limit so you won’t be tempted to purchase more than is affordable.
Lincoln Savings Bank, in conjunction with our partner Elan, has several credit card options available as well as the expert staff to help you and your child. Learn more about our credit card offerings online, or call one of our convenient Iowa locations today and we’ll help walk you through the process.

Lincoln Savings Bank, Member FDIC. Subject to Credit Approval.
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