Learning how to use and be responsible for a credit card is an important skill for adult life. Accordingly, many parents are helping their teenagers acquire student credit cards to help them establish good credit and teach financial responsibility.
These days, there are dozens of banks and other financial institutions that offer student credit cards for college students; some will even offer cards to high school students, though usually they require a parent or guardian to cosign on the account. In fact, over the last decade the number of institutions offering student credit cards has tripled; and many credit card issuers see teenagers and college students as the wave of the future — and are purposely targeting the younger demographic to help them increase their bottom-line.
But there are several points to consider before deciding on a student credit card. The most important variable with any credit card is always the APR (annual percentage rate). These days, it is a popular sales tactic for banks to offer a low introductory APR for a term of six months or one year. However, when the introductory term expires, the APR of the card will revert back to “standard.”
In these cases, it is the “standard” APR that you need to be aware of. Often, the student credit cards with the best introductory rates have the highest APR’s following the introductory period. This makes it all too easy for students to run up a big credit card bill during the introductory period, and wind up paying high interest on the debt later on — not a good financial strategy.
In addition, some student credit cards will have an annual fee. Often this fee is listed in the fine print on the back of a credit card application, so it is important to read the terms of credit carefully before signing on the dotted line. It is also important for mom and dad to understand that by cosigning for a student credit card, they (not their child) will ultimately be held financially responsible for any unpaid debts.
On the other hand, the benefits of a student credit card are many. Research shows that when teenagers learn how to handle the responsibility of a credit card at an early age, they generally have less credit problems later in life. Keeping track of credit reports and card payments are important skills that build discipline and financial responsibility. These traits ultimately help young people to increase their credit scores, enabling them to buy a car or even a new home as they transition into the adult world.
When I recommend credit cards to students I almost always recommend Secured Credit cards. This is a safer way, and offers the student the ability to build credit.
Comment by Jake — August 17, 2008 @ 9:08 pm