Should I help my college student get a credit card?

As my daughter goes off to college in the Fall, I want her to have a credit card for unexpected or emergency expenses that may arise. We have always used credit cards for convenience only and always pay off the entire balance each month, avoiding any interest charges. The intent would be the same with my daughter’s credit card. I am wondering if you recommend adding our daughter to one of our credit card accounts or have her apply for one on her own in an effort to help her establish her own credit? Thank you.

Dean

Hi Dean,

I think you’re doing the wise thing by looking at different options for this situation. I’ve got a daughter, too, and though she has a while before she drives off to college, you can bet I want to make sure she’s as prepared as she can be when the time comes. Does that mean I’ll send her out the door with a credit card in tow? Maybe.

I think there are two questions you’re going to need to answer for yourself in order to come to a conclusion in this case:

  1. Who is going to be responsible for paying the bill for the use of the card?  
  2. How big of an emergency/unplanned expense do you want her to be able to cover based on her own judgment?

Here’s why these questions are pertinent. If this card will be used strictly for emergencies and unplanned expenses you’ll be picking up the tab for, she’ll probably need to be issued a card on your account. Even if she were to apply and be approved for her own card, her credit limit will be pretty darn low (most likely in the neighborhood of $500). Sure, there are a number of things that could be taken care of with $500, but there are some normal things that can’t (some car repairs, for example). Besides, if you’re the one paying the bills, you’ll be monitoring the use of that card ensuring it’s not being misused. She’ll know that, as well.

Additionally, many credit card companies will report the activity of “authorized users” (your daughter, in this case) to the three credit bureaus. While it won’t be a substitute for her own card, it could be a way to get her a jump start on building a credit score.

On the other hand, if you want to focus on giving her an opportunity to build her own credit score, that will require a different approach with a potential solution you may not have considered. Credit card debt has ravaged the lives of college students for decades now, so it makes sense (from a parental perspective) to try and prevent it. A secured credit card does just that. A secured credit card requires a cash deposit that then becomes the collateral for that account. For example, if someone deposits $1,000 into their account, they can then go charge up to $1,000 with that card. The bank (or card issuer) is safe because the money is already on hand should the cardholder default on payment. The cardholder then writes a check back to the card issuer for the amount they charged, and the credit limit rises back to the initial amount. Should you decide this is a potential solution, make sure to ask if the card issuer reports their data to all three credit bureaus. Additionally, some secured cards charge a one-time fee as well as an annual fee, so make sure you’re up to speed on what (if any) additional charges are applicable for your situation.

While I want to make sure my kids will have the resources they need to be as self-sufficient as possible when they’re out in the world on their own, I want to make sure I’m not enabling them to sabotage their financial lives. This will obviously be a decision that needs to be made for each individual child, but it’s a responsibility I take very seriously. You know your daughter and what responsibilities and obligations you think she’s mature enough to handle, and your decision should reflect that. Whichever direction you decide to go, sit her down and cover the ground rules. Have a talk with her about expectations and the potential consequences if those expectations aren’t met. Once everyone is on the same page, then go about obtaining the card that best suits your situation.

Best wishes to your daughter as she begins her new phase of life!

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