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Credit Card Dilemma

Sep 02, 2008 | by William Hayes

Why your student’s college experience should include a card

So you thought Las Vegas has the ultimate gambling attractions. How about your child’s first credit card? The recent high school graduate is heading off to college this fall and the big question is: Do you or don’t you give him/her a credit card? It’s an interesting debate. If you are like two-thirds of Americans and decide to get one you run the risk of abuse. If you are in the one-third you have the potential of your child not being able to get a credit card because they have no credit history.

What to Do?

If you are going to get your undergraduate a card, make sure it is to get one with a low limit, somewhere in the $200 to $500 range. Then make sure Johnny University pays the bills—promptly. This will not only instill a solid monetary ethic but will also provide an equally important good credit rating. Like a good education this can pay off in Krugerrands for years to come.

If you choose not to get one you are just delaying the inevitable. However, one thing holds true: First-time cardholders with limited or no credit history rarely qualify for low interest rates. Whatever the rate is you can always renegotiate it after six months. If you pay your credit card bill in full each month, the interest rate will not matter.
Another issue you should be aware of if you shop for several credit cards at the same time (a process called “shot gunning”) can also be damaging. Anytime you start to apply for a credit card you start the credit card process. Meaning, whenever a credit card company checks your credit reports any inquiry they see they will assume the worst. So until you have a spotless record, don’t give them the opportunity.

Doubts Remain

If you’re still unsure, here is a happy medium. One of the fastest ways to get credit is to apply for a secured card, which requires you to deposit money into a savings account or CD that is frozen while you have the card. The amount of the deposit varies, and some pay interest on the deposit. Make sure that the issuer will eventually upgrade the card to one that is unsecured. Before applying for a secured card, find out how it will be reported to the credit bureaus. Avoid issuers that deal exclusively in secured cards and don’t offer the option to upgrade.

Finally there are multiple alternatives make sure your not duped by a Website or mailer that promising a card. The hidden fees and charges can be horrendous. Between annual fees and late payment fees your child’s education in the world of scams and swindles could come before they even take there first economics exam.
 

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