Getting a credit card is a right of passage for college students. It’s a symbol of newfound freedom and responsibility. In order to prevent your child from racking up a high bill that he cannot afford, have a candid discussion about all of the ins and outs of that little piece of plastic. Over 84 percent of college undergrads have at least one credit card, according to a study by student loan giant Sallie Mae. The average balance on those cards was a whopping $3,173. Review the following credit essentials with your college kid before signing up for a credit card.
Find a Low APR
The annual percentage rate (APR) is the interest rate you pay when you borrow money through the credit card. The higher the APR, the more money it will cost if your kid doesn’t pay the entire balance every month. At the same time, make sure you pay attention to credit cards with too-good-to-be-true introductory offers because as those offers expire, the APR may skyrocket. In any case, an unexpected interest rate hike can instantly make using credit cards significantly more expensive than either of your expected, so be prepared and always strive to pay off the balance each month.
Understand the Annual Fee
Some credit cards charge an annual fee, which is a fee you are charged on a yearly basis for simply having the card. This fee must be paid even if the card is never used. Aim to find a card that doesn’t have an annual fee.
Know the Terms and Conditions
Simply put, the terms and conditions of some credit cards are much worse than others. In particular, some cards are specifically designed for college students. If your college kid is just getting started with managing their finances, it may behoove you to have a prepaid credit card or a secured credit card at least until your child proves he can handle more responsibility. This will help him get in a good habit of paying off the balance on time and keep spending within his means.
Learn About Identity Theft
Before your child signs up for his first credit card, be sure he understands how it may increase his risk of identity theft. As the fastest growing crime in the nation, there are over 9.9 million incidents of identity theft every year, according to the FTC. Protect your college student from becoming a part of that statistic by investing in identity theft protection services. These services provide 24/7 monitoring so that suspicious activity can be remedied quickly before major damage is done.
Don’t Miss a Payment
Missing a payment can be extremely detrimental to your college student’s credit since he likely has a limited credit file. Discuss with your child the importance of paying off balances in a timely manner. One missed payment can result in a staggering 70 to 90 point credit score decrease. While the best practice is to pay the balance off each month, at the very least make sure your child always makes the minimum payment.