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Obtaining a low interest student credit card can be the perfect solution for meeting the student's incidental needs. However, with the passing of the Credit Card Accountability, Responsibility, and Disclosure, Act of 2009, also known as CARD, anyone under the age of 21 will need a cosigner in order to obtain a credit card.
Options for Students
If you do not have a cosigner readily available, your best choice may be to open a checking account and obtain a debit card. Most banks will offer overdraft and lines of credit on your debit card, which give you the benefit of credit typically at much lower rates. It is important to keep good track of your spending, however, in order to avoid overspending your limit and causing a check to bounce. The associated fees would cost more than a high rate credit card.
Other options for students include re-loadable prepaid debit or credit cards. During the summer, it is easy to tuck a little bit of the money away that you earn by paying it into a prepaid card; you can then access the money when you need it throughout the school year. You can ask parents and grandparents to add to the card around birthdays and holidays to help stretch your budget.
Options for Parents
While parents can cosign for their adult children to obtain credit cards, it should not be done without maintaining some control over whether or not the payment is being made on time, since their credit habits may affect your credit rating, particularly if they exceed the credit limit or fail to make timely payments. As well, you will be ultimately responsible for the balance on the card should your child be unable to repay the debt. This option may work best if you are planning to make the payments while your child is at college.
A better option for providing your young college student with accessible spending money is to load funds onto a prepaid credit card. This gives your child the ability to practice managing a specific amount of funds without taking as much credit risk. As well, you do not need to have the card with you to be able to add funds. You may be able to find a combination card that requires an initial deposit and then converts to a credit card while offering a much lower rate than traditional cards.
If you do want to help your adult child establish credit, it is important to help him or her understand the long-term ramifications of making poor credit card management decisions. However, if you have reasonably good credit, your assistance should help ensure that your college student is able to obtain a card at a lower interest rate than he or she would have been able to obtain alone.
