I got my first credit card when I was an 18-year-old college student.
It was a department store card from Sears and I didn’t charge a huge amount. But being a college student, I didn’t have a lot of money and I didn’t always make my payments on time.
It didn’t ruin my credit forever, but it definitely created some hiccups along the way, especially when I got my first full-time job and was trying to buy a car.
So, when my daughter wanted to get a credit card before her freshman year of college, my answer was an unequivocal “NO.”
Some of her friends were getting credit cards, but their parents were co-signing and planned to pay the bills.
After my own credit card experience, I didn’t want to set my daughter up for trouble.
The first credit card can be a financial education opportunity, but can all too easily backfire.
It may build credit, but parents footing the bill can also build bad habits.
“It’s like saying, even though it’s your credit, I’m being responsible for you,” says Greg Pang, vice president and financial advisor at Capital One Investing.
Students who take on the responsibility of a credit card too soon may exercise poor judgment in spending due to inexperience, have trouble making payments or only be able to make minimum payments.
When you make minimum payments, “you’re not building credit, you’re ruining credit and charges are amassing,” Pang says, emphasizing that to build credit, you have to pay off your credit card bills in full.
Parents can help by educating and guiding their students based on their level of maturity.
But even the most responsible young adults would be wise to hold off on getting a credit card during the first two years of college, recommends Theodore Daniels, founder and president of the Society for Financial Education and Professional Development.
“The first year of college is very tough in terms of getting organized,” Daniels says. “Students should establish a base and not have to worry about the pressure of having to work to pay for a credit card.”
In the meantime, students can test the financial waters by using a debit card, either prepaid or one tied to a checking account.
If a debit card is tied to a checking account, Pang says parents can help by monitoring their child’s account to see if they’re disciplined enough to keep money in it.
The student will also get budgeting practice, so they don’t overdraw their account.
Pang also recommends parents spend some time explaining how to make a budget. He advises parents to have their child write down every penny they spend for a period of time.
“What most young people do is just go and swipe the card or go to the ATM and pull out cash and they never write it down,” Pang says.
“If you’re not writing it down or monitoring it in any way, you have no way of knowing exactly what you’re spending. The banks try to make things easy, but it also makes it easy to forget our responsibilities.”
It’s easy to overdraw a debit card tied to a checking account, resulting in bank fees that can easily overwhelm a student with limited funds.
For those needing more practice and experience, a prepaid debit card might be a better option. That way, there’s still an opportunity to practice budgeting -- but no chance of overdrawing an account and becoming engulfed in fees.
Daniels says college students should be ready for a credit card by their junior year, and should definitely have one by the second semester of their senior year to build credit.
Once the first credit card is in hand, “use it only for educational purposes and emergencies, not for casual spending, food and entertainment,” Daniels says.
“Do not charge more than a third of your credit limit and pay consistently as agreed.”
This ensures a good credit report, which can impact things such as buying a car, interest rates on a mortgage, even applying for a job.
More employers than ever are taking a look at credit reports during the hiring process, even for internships, Daniels says.
“A person’s credit report is an indication of his character and judgement,” Daniels explains. “Do you do what you say you’re going to do? Studies have shown that usually people who have bad credit exercise bad judgement.”
Learning to budget, developing good judgement and responsibly managing credit card debt are all educational opportunities, and parents play a significant role, Pang says.
“A well-educated young adult that spends a lot of time with the parent learning, discovering, realizing, will be successful,” says Pang. “With no education, it’s a rude awakening.”
After telling my daughter about my early experiences with credit, she agreed getting a credit card probably wouldn’t be the best idea right now.
Or so she said.
After she came home for Christmas break, a credit card statement arrived at my house in her name. She succumbed to an offer to “save 10% with a new account” with a store credit card -- the kind I’ve learned to avoid.
But her balance is zero, and she told me she doesn’t plan to use the card much.
I’m ready to do my job of encouraging self-control, good sense and reminding her that mama won’t pay the bill.
You Turn: When did you get your first credit card? Will you encourage your kids to wait to sign up for theirs?
Robin DeRosa is a freelance writer in Northern Virginia who is responsible for the financial education of three teenagers, one a college freshman.