How to Prepare Your College-Bound Child for Their First Credit Card

When your child is gearing up for college, it’s not out-of-the-ordinary for parents to consider sitting them down and talking with them about finances. After all, it’s a good idea to set your them up with an emergency credit card, a card they can use for their school supplies, or a general-use card in case they need it.

One of the biggest lessons that children should understand about entering the real world is how important financial literacy and responsible money habits are. A critical part of this big conversation will probably revolve around credit, credit scores, and credit cards. Now, these are all very important topics that can seem overwhelming to explain, especially in layman’s terms. We’re going to walk you through all the essentials you should share with your child so you can set them up for a brighter, better, successful future!

Help them Understand What A Credit Score Is

Before you dive into explaining how important it is for them to start building strong credit, it’s probably a good idea to let them in on what a credit score is in the first place. Reputation is paramount in the financial world—when you have a credit card, it becomes an important part of your borrowing history, or credit score.

According to the Consumer Financial Protection Bureau, a credit score predicts how likely you are to pay back a loan on time. Credit report companies consider the following in their scoring model to determine your credit score:

Bill-paying history

Current unpaid debt

Credit utilization

Number and type of loan accounts you have

How long your loan accounts have been open

New applications for credit

Whether you’ve had a debt sent to collections, a foreclosure, or a bankruptcy – and how long ago

In addition, it’s important to note that your child may not be able to sign for a credit card all on their own, especially if they lack an employment history. In fact, the Credit CARD Act of 2009 made it more difficult for people under 21 to get credit cards of their own, but co-signing a credit card with your child can be a way around that issue. When you become a co-signer on your child’s credit card, you and your child share responsibility for any debts charged to the card—and your child’s credit habits could affect both of your credit scores.

RMLEFCU Resource

With RMLEFCU’s SavvyMoney, you can help your child understand all the above factors and just how much they influence one’s credit score. SavvyMoney provides our members with a comprehensive, inside look at their credit history—including what’s improving and hurting it.

Instill Healthy Financial Habits

Ensuring your child has strong financial habits and displays a good understanding of healthy spending habits is critical to laying the groundwork for a healthy, successful financial future for them. Educating your children daily about the difference between needs and wants, budgeting, and the difference between immediate gratification and deferred variety, will go a long way towards keeping them out of financial trouble and thus, a higher credit score.

Speak With Your Bank or Credit Union About Their Starter Credit Cards

Your financial institution wants you and your family to have a successful financial outlook (especially if you are a member of a credit union like RMLEFCU!). We want you to have all of the tools and resources needed to pave the way towards financial success for yourself, your child, and your family as a whole. Thus, we’re the perfect people to ask about which credit card would work best for your child.

At RMLEFCU, many first-time credit card users apply to RMLEFCU’s Student Visa. With its low APR and no annual fee, it’s the perfect choice for your child’s first credit card.

Review your Child's Purchases with Them

After your child receives their first credit card, it may be a good learning exercise to review their monthly purchases with them – at least for the first few months of them having it. By discussing the rationale behind each purchase, you can help them gain valuable insight into the impulsive thinking that causes some people to spend more than they can afford. Likewise, by enforcing timely payments for the entire month’s charges, you’ll help them avoid the two things that can hurt their credit score the most: late payments and high balances.

RMLEFCU is Your Trusted Resource

Starting one’s financial future can be an overwhelming endeavor altogether, but it doesn’t have to be. In fact, at RMLEFCU, all our representatives are certified financial counselors so they can help prepare you and your child to tackle whatever financial obstacle comes along. Visit our website or stop by any RMLEFCU branch for more information on all the credit cards that we offer.