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Janett Pike, 46, a single mother of two who lives in Hackensack, New Jersey, is sure of one thing. She won’t let her son, Jarydd, a sophomore at Rutgers University, get a credit card in his own name until he’s ready to graduate college. “I want my children to get through school and enter adulthood without being in debt,” Pike says. To that end, Pike gave her son one of her credit cards, making him an authorized user, and committed to paying the bill as long as Jarydd, 18, is in college.
Joe Ridout, spokesman for Consumer Action, an advocacy and educational not-for-profit, says because of Pike’s decision, Jarydd’s credit is now linked to hers. And as long as Pike has good credit, which she does, Jarydd will too. “The authorized user piggybacks on the cardholders’ good credit history and automatically starts building credit,” says Ridout.
The card Pike gave Jarydd was a MasterCard with a $2,000 limit and no restrictions on his usage. Still, Jarydd has used the card only sparingly, never charging more than a total of $150. Even this past summer when Jarydd worked and temporarily assumed responsibility for the credit card payments, he still discussed his purchases beforehand with his mother, kept the balance low, and paid it off in full each month.
Of course, some parents wouldn’t even consider giving their child unrestricted charging privileges on a card that they were responsible for. Parents can help their college-age children avoid pitfalls and build a strong credit record by emphasizing that credit is a loan that has to be paid back with interest and by helping their child create a budget.
Students should also be aware of how much the teaser rate jumps after the introductory period ends, as well as when that rate hike will occur. Reading the fine print to find out about any late fees, over the limit fees, and default rates that the card might carry is an essential step. “Just one mistake can lead to an interest rate of over 30%,” Ridout says. “The student in that situation will end up paying double what they charged, every couple of years.”
Although using rewards cards can encourage spending, there is one worth mentioning — Citibank’s MTVU Platinum Select Visa Card. On top of rewards for categories that dovetail with student spending, like books, CD’s and movies, this card gives students the highest points for getting good grades, paying their bill on time, and not exceeding their credit limit.
Experts also say that there is no need for a college student to have a wallet full of cards. One card with a low limit, even as low as $500, is best at first. Paying credit card bills on time is key to establishing a good payment history, and paying the bill in full each month is a foolproof way to stay out of debt. “I wanted them to see the big picture, to understand about managing money and prioritizing,” Pike says, and she believes her efforts paid off. “I