How Your Student Can Responsibly Build Credit

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For decades, one of the scariest thoughts for parents has been their students getting credit cards before they can repay the balances. The result is often missed payments, negative credit ratings, and unnecessary debt. 


However, responsible credit building starts with building a credit history. Good credit could reduce what they pay for insurance and a wide array of products and services.


Here’s what your family needs to know to help your student build good credit:


Set a budget with your student.


Good credit and good financial decisions overall starts with budgeting. Have your student go over their budget with you and a financial professional or expert in student budgeting on campus. Options include your financial planner and credit or financial education counselors at credit unions. On campus, students can visit financial aid and student money management offices. 


Encourage students to use free apps such as for budgeting. All their spending from bank accounts to credit cards is categorized into areas such as food, entertainment, and housing. 


Talk to them regularly about finances without judgement.


Review credit cards terms with them. 


Your student probably doesn’t know much yet about how credit cards work including how interest accrues. When they get their first student credit cards, explain basic terms such as interest rates, payment due date, late fees, and penalty interest rates.


An example for explaining interest rates:

You borrow $1,000 and the interest rate is 20 percent. It costs $200 to borrow the money for one year. The minimum payment may only be $15 or $20. Thus, it could take 5 years or more to pay off the balance.


For a real example, show your student one of your credit card statements where it lists the time period for repayment based on only paying the minimum.


Add your student as an authorized user on one of your cards.


Authorized users can be added and take on your credit history from that one card. While you may or may not want to give your student access to your credit line, you can still give them access to your credit history. Just cut up the card in their name when it arrives. Then, it’s simply an act to help them start a good credit history. 


To make sure you are really giving them good credit history, choose a card you’ve had for several years that you haven’t charged more than 25 percent of the credit limit on.


Avoid opening multiple cards.


When building new credit, the easiest mistake you can avoid is opening multiple cards at once. The FICO credit scoring system drops for scores for frequently applying for credit cards. Encourage your student to get one new credit card, avoid applying for another card for at least 6 months to a year, and keep the balance below 25 percent of the limit. 


Know due dates for private and federal loans


While federal student loans generally aren’t due for 6 months after graduation, missing a payment can seriously ding credit scores. Students close to college graduation will want to call the servicer to confirm the exact due date for their first payment.


For private student loans, especially parent ones, verify the first payment due date as well. Payments may start right away, after graduation, or six months after graduation. Make sure you have the exact date in writing. 


Review credit reports for errors


Generally, it’s a good idea to start ordering free credit reports on an annual basis at age 16. It’s not uncommon for students to notice accounts they didn’t open. This information can be easily disputed and give their credit report a clean slate.


5 Takeaways

  • Get your student in the habit of checking credit reports for errors early. 
  • Missing a student loan payment can ding credit reports. Learn the exact dates repayment begins to avoid unnecessary late payments.
  • Opening multiple credit cards at once can reduce credit scores. It’s also difficult for your student to manage. Have them wait at least 6 months between opening new credit cards.
  • Adding your student as an authorized user on one of your cards can boost their score without you having to give them access to use your card.
  • Setting a budget for spending before their first credit card helps reduce the chances of maxing out limits.

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