Despite the rising cost of education and everything that comes with it, Generation Z is doing pretty well with their finances.
According to survey data from Discover, 81 percent of Gen Z consumers are confident about properly managing their money and 72 percent are confident in their ability to maintain a healthy credit score.
Before your child heads off to college, consider a student credit card to help them either continue managing their money while earning rewards or build out their credit history.
Understand your child’s credit history
“If students have an idea of their current credit score, it can help them narrow their search to find a card that will be the most likely to accept their application,” says Laks Vasudevan, Vice President, Card Products Strategy at Discover.
Vasudevan suggests using Discover’s Credit Scorecard, available to anyone no matter if you’re a Discover cardholder. With this tool, your child can get their FICO® Credit Score for free.
Low credit and no credit options
If your child has low credit or no credit history, Vasudevan suggests considering a secured credit card.
“After an initial deposit, the card works similarly to a traditional credit card and it can help rebuild credit,” says Vasudevan.
The Discover it® Secured doesn’t charge an annual fee and is one of the very few secured cards offering rewards. They’ll earn 2 percent cash back on gas stations and restaurants up to $1,000 in combined spending per quarter and 1 percent on all other purchases.
Determine a rewards goal
Before choosing a student card, determine your child’s spending needs so that you can align that spending with rewards.
“When families are shopping around for their student’s first credit card, they should consider the rewards structures that will best fit students’ needs, and they should also pay close attention to the card’s fees and payment policies,” says Vasudevan.
If your child plans on bringing a car to campus or commuting to college from home, for example, look for rewards on gas purchases. The Discover it® Student Cash Back offers 5 percent cash back in rotating categories each quarter, including gas stations, grocery stores, restaurants and more each time you activate (up to $1,500 in purchases each quarter, then 1 percent), all for no annual fee.
The Discover it® Student chrome also doesn’t charge an annual fee and will help your child earn 2 percent cash back at gas stations and restaurants (up to $1,000 in combined purchases each quarter, then 1 percent). They’ll also earn an unlimited 1 percent on all other purchases.
Student cards aren’t for everyone
Your child may not be ready for their own credit card, and that’s okay. If your kid has a history of overspending, adding a card into the mix could damage their credit score in the long run.
If they end up in credit card debt as a result of overspending on their card, interest rates could put them in even more debt.
As a second option, you might consider allowing your child access to your credit card as an authorized user.
Add your child as an authorized user
As an authorized user, your kid can build credit, practice healthy spending habits and earn rewards for their spending, which go back into your account.
You’ll be able to monitor how much your child spends but will still be responsible for paying the monthly credit card bill.
“As parents consider adding their child as an authorized user, they should think about their own credit score and payment history as their authorized user will ultimately be impacted by the primary account holder’s financial habits,” says Vasudevan.
The bottom line
A student credit card can be a great tool for college students looking to continue practicing good financial habits while building credit. If you’re not sure your child is ready to apply for their own card, adding them as an authorized user to one of your accounts could introduce them to responsible credit card usage.