Your college freshman has checked off everything on the school buying list: laptop, clothes, alarm clock, backpack ... but what about a credit card, or a student credit card?
More than three-quarters of college students have a credit card, according to a 2011 study from the Student Monitor, while 2 out of 5 are interested in getting one in the next year. The disturbing part about this study? One in 20 report their parents don't know they have a credit card.
That's a good reason to start teaching them now about the power of plastic.
New credit card laws in effect
The Credit Card Accountability, Responsibility and Disclosure Act of 2009 has made it more difficult for students to acquire credit on their own if they are younger than 21. Because of the CARD Act, anyone under 21 years old can't sign up for a credit card unless they can prove they can make the payments (read: income) or has a co-signer who is over 21.
Also in the law, students no longer have to resist the temptation of free gifts offered to them from credit card companies in exchange for an application. Before the CARD Act, credit card issuers could give out, say, free pizza if a student filled out an application for a credit card or student credit card.
With these new rules in effect, what are a student's choices? One option is a secured credit card, says Barry Paperno, consumer affairs manager for myFICO.com. These cards require a deposit as collateral, typically between $300 and $500, to activate it. The deposit is placed in a savings account, money market account or certificate of deposit. If your student makes payments on time, the bank will consider making the card unsecured after about a year of good behavior.
Another option is to add your student as an authorized user on your credit card. The plus: Most credit bureaus only include good payment history on an authorized user's report, so your student's credit will only be helped. If you're worried your student may get trigger happy, see if you can place limits on the card.
For example, American Express offers an authorized user card for children older than 15 with spending limits that can be changed any time online. If your student needs to buy books this week, you can boost the limit from $500 to $1,000. But next week, the limit returns to $500.
"Think of it like a family phone plan," says Robin Korn, head of charge cards for American Express.
The last option is a so-called student credit card, which is a regular credit card marketed toward students. Wells Fargo offers their Cash Back College card, with 1 percent back on purchases. The monthly statements include financial management tips, and the bank offers an online credit card tutorial, says Dinna Martinez, college credit card product manager for Wells Fargo. Check other companies for a specially branded student credit card, but shop around for the best terms even if it's not a distinctly student credit card.