My DSs just graduated high school, and we have been getting many solicitations from Wells Fargo re them establishing credit by getting their own credit cards aka Cash Back College Card. Until now, they have been carrying a card linked to their dad’s credit card which they use for permitted expenses. Is it of value to them to get credit cards in their own names and, if so, which one is best?
Yes it is valuable for your child to establish credit in their own names. It will help when they go rent their first apartment, buy their first car, etc… In terms of what’s best, it depends. My daughter will be opening her first card with a company we are using for ourselves with good fraud protection and a very low limit to start.
FWIW, I think the most important conversation though is about paying off the card every single month and not carrying a balance. We wanted to our daughter to be crystal clear that this was about establishing good credit, not having a credit line of “extra” money to spend. If you cant afford to buy it in cash, don’t charge it on to the card.
Our kids got credit cards and an ATM card from the same bank – a credit union – that we use.They also had checking accounts there. One advantage of that is that it was very easy for us to transfer funds to their accounts if needed. The account and cards were in their names, but we also had access to make such transfers. Another advantage was that the rates were very good. Often when students get cards at a bank in their college town, the cards have high service fees or low credit limits (and possible penalties for exceeding the limit).
Be careful - the cards marketed to students sometimes have the worst terms. Discover used to send my D tons of mail advertising how wonderful their cards were for building credit - I opened one out of curiosity and found out the interest rate was just under 30%! That’s usurious. My D also got a checking account and debit card to start with a smaller bank, when the same company offered her a credit card with decent terms she took it. She charges her rent on the card and pays it off each month - everything else comes straight out of checking.
My D got a student Discover card – we are just certain to pay in full every month.
If you want to know which cards are the “best” you have to know how you’ll use them. If you’re a person who pays your cards in full each month, it really doesn’t matter what the interest rate is (you’ll never pay interest), you want to make sure there are no other fees. If you’re a person who carries a balance and will pay interest (not recommended), it might be worth paying a small annual fee to get a lower interest rate, for example.
We’re a “never carry a balance” family, so I advised my son to start with a simple credit card from the gas station he regularly uses. He charges about $20 - $50 worth of gas and pays off the balance in full each month. Plus, gas cards are relatively easy to get even with no credit history and have low risk because there’s a limit to how much gas or snacks you can buy.
There are many components to your FICO score, but the one that causes younger people the most problem is length of credit history. A low credit limit gas card is an easy way for a young person to start building that history. Doesn’t hurt that they also get a small discount on the gas.
My friend likes the Discover card - her kids do pay it off every month, and get some $ credit per semester for good grades on top of that.
Credit is also established with installment loans (student loans, car loans) etc. Even if those loans are held jointly, a credit history can be established. Ideally, different types of credit (installment/revolving), and your ability to repay promptly help create your best credit profile. And, while you can establish a credit history in college, in my experience, there is a pretty good chance that your student will need a cosigner or guarantor on his/her first lease upon graduation as they will be so new to the workforce.
We got a Discover card as well, when my D turned 18. She prefers to use her debit card, so there have been just a few purchases on the Discover, all paid on time, so she now has 2 years good credit history.
Before each of our kids went off to college, I set up a joint account with each and me. S’s was 2006, D’s was 2008. It has a low credit limit ($2500 IIRC), so it can get them out of most travel emergencies and buy things related to college.
These cards allowed our kids to share my excellent credit history and establish great histories of their own. D has her own CC with Costco Visa and AmEx. S had a stack 1.5 inches thick of CCs.
My D got a Capital One card to build credit history and for the no foreign transaction fees. If your student plans to study abroad, that can save money.
Schwab also has debit cards where it reimbursed for all ATM fees anywhere. It’s handy for students and travelers.
We taught our kids that credit cards were there to work for them and if you paid interest you were working for your credit card. We taught them to pay the card off weekly not monthly…to better really monitor spending , but discussed that if interest rates ever rose on bank accounts they should rethink that.
My kids only used my credit cards while in school and my credit did get carry over to them. When I pulled up their credit report I saw my cards on their credit history. I really didn’t want my kids to have credit cards until they had jobs.
I think that it is important to put the eventual need for a good credit score into the overall context of helping your child learn to handle their financial life. It is good that the advertising mail has started you thinking along these lines, but don’t let Fancy Bank’s marketing verbiage distract you from the larger project. What can your child pay off from their own income and savings? How much back-up are you ready to supply? Is a card from Fancy Bank needed, or is your own bank or credit union good enough?
Starting with her first year of college, Happykid has been gradually added to our Amex, Discover, and credit union Visa cards as needs changed. This started with Amex because I could limit the amount available to her, and her charges were listed separately. We all like knowing that she’s covered for an emergency or a major purchase. Happydad and I appreciate the extra miles and points, and don’t mind essentially floating her a loan for a month or two on occasion.
When she started working more, she got her own secured Visa through her credit union. She likes the small limit that she knows she can always cover, and that it is paid off by transferring from one of her other accounts there. Like most people in her generation, she doesn’t carry cash, just her credit union debit card. Last year she got a Target charge card (not their master card) because she shops there so much and likes the 5% discount.
She has her student loans on auto-pay, also through her credit union.
Our system works because we have one kid, and because she is a saver by nature. Families with multiple children, or children who are impulse shoppers would need a different plan.
Our kids have never paid a late fee or finance charge. They are very responsible with credit and debit cards. They would only use our joint card for emergencies, which never happened but gave me peace of mind.
I was helping D with this last night and today.
Her credit files are frozen due to the Equifax breach (as are mine - we were both impacted). First she called Cap One to see which bureau to unfreeze for their app - the rep told her to just fill it out first. She followed that advice and of course, instant rejection. Thanks useless rep.
Then Discover - who has been mailing her apps for years. She unfroze TU and Equifax for them and after the entire app was nearly done - several screens, I watched - they want her to upload photos of her DL and her SS card. Seriously?
So then she went to the local SS office because for whatever reason we never got a card for her or it’s been lost for most of her life, and our state doesn’t allow her to order a replacement online. She’s filed taxes since she was about 15, but they need a photo of the actual card. To which the SS office is like WHAT? Why do they need that? But they said they will mail her one. So whenever that arrives she can finish the app.
What a headache.
Definitely better to get a first credit card while still in college. D1 applied for Discover in college and was turned down bc we didn’t know what to put for income. She applied for a credit card after graduating, and even though her credit score is good, was only able to get a secured card. It’s hard for me to fathom why someone with a college degree and a job is a worse credit risk than an undergrad, but there you go. D2 got a Discover card in college, misplaced it, never used or activated it, and after a year got a credit limit increase for being “responsible.”
But also… I put D1 on my Amazon visa account as an additional card holder. When she was turned down for credit, we looked at her credit report, and the Visa wasn’t listed. I had put D2 on a Bank of America credit card, and that one did go on her credit report. So if you are adding kids to a card to improve their length of credit, etc., pull their credit report to make sure it’s on there.
D was shopping with us at Costco during break from college with us (with no wallet or ID) when the employee there begged her to apply for a CC. To help him out, she applied with him and when it came to income, he said to include all sums she was being provided to attend college, which was significant. She was instantly approved with a higher credit limit than the Costco employee! She’s kept that CC and got a new AnEx and Citi Visa card when Costco switched from. AmEx to Citi.
My daughter has a cash rewards card from USAA. At the time she applied, she was still a student and put $6K down for income (summer work and a small PT job at school). They approved her for $1500.