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Students & Credit Cards

Chris Farrell Jun 30, 2008

Comment: I am listening to your answer to the parents who have a son going to Prague for fall semester. I have two daughters who have just graduated from college with no debt and no credit card. Now they are on their own – for real – for the first time in their lives with great grade point averages, but with NO CREDIT HISTORY.

My husband and I thought we were protecting our daughters from lenders by them not having credit cards, but we were actually handcuffing them. Since graduation, they had trouble getting apartments and they found it difficult to establish themselves in their new cities. I hardily endorse the “get a credit card” answer you gave the e-mailer, and don’t chicken out with the pre-paid card. As I understand it, they don’t really work to help establish your credit record. If I had it to do again, I’d get them a card when they were sophomores or juniors and have the very long talk about not spending more than they can pay, but use the card regularly and pay off immediately. Thanks, Lynn.

Response: Thanks for your comment. I’m posting it because you offer a different–and useful–perspective. A lot of people agree with you.

The advantage of a secured card in this case is that it prevents the novice user from getting into trouble while allowing the parents to rest easy that their student is financially covered in an emergency. (If a secured credit card from one of the dominant card issuers is regularly used the payment history will be reported to at least one of the major reporting bureaus. It’s a “safe” way to build a credit history, and usually a secured card can be exchanged for an unsecured one after a period of time. The bigger issue here is to stay away from secured card scams.)

However, since the credit card companies make it so easy, most college students should get an unsecured credit card right before graduation.

On the more general question of students and credit cards, the reason why I lean toward the more conservative side of the equation is that the evidence shows too many college students are taking on too much credit card debt. Yes, students may have a credit history and a credit score. But a number are starting out their work careers with a debt burden that can hamper their financial freedom. I’d rather students graduate with no credit card debt and no credit score. They will have a lifetime of earnings to build up their credit history. I know it isn’t fashionable, but I am still troubled with anyone having a credit card (except for emergencies) without earning an income.

Of course, parents know their children. And for some getting a card early and using it often is the right choice. For others, caution is the better course of action.

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