Helping Your College Student Build a Strong Credit Score
As parents, we’ve spent years guiding our children through school, life skills, and big decisions. Now, as they head to college, it's time to tackle another crucial life lesson: financial responsibility. And it starts with their credit score. This isn't just about a number; it's the foundation for their financial independence, affecting everything from loan rates to renting their first apartment. Here’s how you can help them build a strong start.
Why Credit Matters for Your Student
Lenders and landlords use credit scores to determine how reliable your student is. A high score (generally 700 and above) signals that they manage money wisely. A low score, however, can make it tougher and more expensive for them to get a car loan, rent their first apartment, or even secure a cell phone plan. Starting now sets them up for success later on.
Your Role in Their Financial Journey
Be a Guide, Not a Rescuer: The goal is to teach them to be responsible, not to handle their finances for them. Talk to them about the importance of paying bills on time and why it's crucial to not overspend. Open communication is key.
Add Them as an Authorized User: This is one of the easiest ways to help. You can add your student as an authorized user on one of your credit cards. They’ll get their own card and your good payment history will be reflected on their credit report, giving them a positive boost. A word of caution: Make sure you are using the card responsibly and paying on time. This also means having an honest conversation with your student about the ground rules for using the card.
Explore Secured Credit Cards Together: If being an authorized user isn't an option, a secured credit card is a great next step. With a secured card, they deposit money into an account, which becomes their credit limit. For example, a $300 deposit means a $300 credit limit. They can use the card for small purchases and then pay the balance in full each month. This teaches them good habits with no risk of going into debt. After a year of responsible use, they can often graduate to a regular, unsecured credit card.
Discuss Student Loans and Credit: If your student has to take out student loans, it's important they understand that these are lines of credit that affect their score. Explain that making payments on time after graduation will be critical to their credit health. Also, discuss how private student loans will show up on their credit report while federal loans may not until payments begin.
Remember, building good credit takes time and discipline. By guiding your student now, you're not just helping them build a better number, you're helping them build a skill set that will serve them for a lifetime.
