Building a Good Credit Record in College

Q. My son is heading off to college this fall, and I've heard that many college students get into trouble with credit card debt. How can I help him build a good credit record?

Handling credit will be an important aspect of your son's life from now on, and you're right to want to get him off to a good start. Here are some suggestions on how to do it.

1. Review the basics.

Have you had The Talk with your son? Not the one about the birds and the bees--the one about how credit works. We assume that our teens understand credit cards because they see us charging purchases and paying bills each month. But you might be surprised at how little your son understands about basic credit topics like interest rates, late charges, minimum balances, credit limits, cash back, rewards, etc.

So ask your son what he knows about credit. Review the basics. Show him a copy of a recent credit card bill and explain the various terms that you see on the page. Explain the credit history and credit scores and tell him how they can impact everything from the interest rate on a car to the kind of job that he's able to get.

2. Consider credit card options.

There are several ways you can provide your son with a credit card when he's at school.

• Add him to your card as an authorized user. You'll be responsible for paying the bills, and it doesn't help him build his own credit history.
• Get a prepaid credit card (actually a prepaid debit card), and refill it as necessary. Unfortunately, a prepaid card often comes with substantial fees for using it, reloading it, checking its balance, etc. It won't help your son build his credit record, either.
• A secured credit card might be a good option. You and/or your son deposit a certain amount of money say $1,000 in an account. The bank issues a credit card with that credit limit. The bank doesn't touch the account unless your son doesn't pay his credit card bills. His record of payments on this account (good or bad) will be noted on his credit history.
• Your son might also want to apply for a credit card designed specifically for students. Some cards require co-signers; others do not. Make sure that your son understands that the way he uses such cards will have an impact on his credit record.

Whatever choice you and your son make, it's important that the two of you sit down and read the terms of the agreement before you apply for the card.

3. Discuss your son's financial obligations.

Do you expect your son to pay off his own credit card bill each month? Will you pay the entire bill, no matter how high? Will you give him a certain amount towards the bill each month and expect him to cover the rest?

It's important that you both understand who is responsible for any credit card charges that he makes.

4. Make sure he knows what to do in an emergency.

Encourage your son to check his credit card statement online, and ask him to watch for any charges that he doesn't recognize or that he doesn't remember making. (Once a week is best, but at a minimum get him to review his billing statement each month.)

Show him where to find the numbers to call if his credit card is lost or stolen, and explain the importance of calling the credit card company as soon as he realizes there's a problem.

5. Provide him with resources.

You and your college student may both benefit from a look at some websites that discuss the basics of credit and building a good credit score:

• Visa's Be a Credit Expert
• Taking Control of Your Finances: A Special Guide for Young Adults from the FDIC
• Are You Credit Wise? from MasterCard