Despite the 2009 CARD Act, which prohibits anyone under the age of 21 to open a credit card account without a cosigner or at least can show means of making the payments, such as a part time job, there’s new evidence that shows college students aren’t having any problems with opening those accounts. As a parent, you may not be able to prevent your college bound teen from securing a credit card, but you can lay a solid foundation.
Some parents put their college-bound kids onto their own accounts while other allow them to open their accounts in their own names and then guarantee any unpaid balances. Those parents who put into place definitive guidelines on how the credit card may be used experience fewer surprises on their teen’s credit card statements than those parents who give carte blanche to their young adults. Also, some teens are more mature than others and the degree of maturity determines how committed they are when it comes to their financial decisions.
For those parents and teens who are pondering their options, here are a few tips for maneuvering the technology and the changing financial environment courtesy of the new laws.
Putting into place parameters that constitutes what’s acceptable in terms of credit card charges can keep confusion to a minimum and allow parents to extend a leap of faith of sorts. That said, some financial counselors encourage parents to monitor activity via the credit card website. Alerts can easily be set that allows a parent to check in when the payment hasn’t been made or if the credit card account is nearing its credit line.
The latest numbers available for college students and the credit card debt they carry tells the tale. Many college freshmen that carry credit cards also carry an average balance of $2500. For seniors, that number nearly doubles.
Parents are now being encouraged to ensure a transparent policy between them and their teens. It’s all about full disclosure on the part of parents. Let college students know that their credit card statements are being monitored in case a pattern begins to emerge that could result in problems. This is not the time for parents to take a nonchalant “live and learn” attitude.
Those “live and learn” lessons could affect those young people well into their twenties, not to mention put into place habits that will keep them in a tough economic position for many more years. Another emerging consideration suggests family contracts so that there is confusion associated with what a credit card may be used for. Include the rules and repercussions if those rules are broken.
For those parents who do opt to allow their teens to have their own accounts, include a stipulation that they understand and can hold an intelligent conversation regarding the terms and conditions of the account. Be sure they can satisfactorily explain how APR works, grace periods and due dates. If they’re making the payments on their cards via a part time job in between classes, include the importance of making more than the minimum payment.
With more credit card companies offering perks and rewards, it’s also suggested parents delve into choosing the right offers with the best perks. For college students, cash back or gas points are usually a good choice.
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