Should you add your college student as an authorized user? Or make them get their own card?

You want to send your child to college with a card so they can buy books and food and, hopefully, build a good credit history. So should you add them to one of your cards as an authorized user? Or encourage them to strike out on their own and get a student credit card?

We reached out to several personal-finance and financial-education experts to get their takes.

First things first, yes, it’s a good idea send your kid to school with a credit card

If you were thinking of a debit or prepaid card as a solution (instead of a credit card), know that it won’t accomplish something very important: Jump-starting your child’s credit history.

Len Rhodes, an administrator and educator at East Carolina University (and co-founder of personal-finance education group The Money Professors) has tracked an interesting trend over the years: 10 years ago, about 60 percent of the student body at ECU had a credit card in school. Today, less than 20 percent does, he says.

That’s problematic because those students could be using their college years to build the kind of credit history they’ll need in the real world. (Read: Who can check your credit report?)

“Unless they’re a trust fund baby, they’re going to need to rent an apartment and borrow money to buy a car,” says Mark Weitzel, a professor at ECU and another Money Professors co-founder. “If they’ve started this process in their college years, they’ll have that couple years of good credit history.”

Authorized user: pros and cons

Adding your kid as an authorized user to your card means giving them permission to use a copy of your card, while you maintain complete responsibility for paying the bill.

Pros:

Quick and easy: Adding your kid to your card involves only a call to the bank – no application and no credit check. A usable card will arrive in the mail in about a week.

Furthermore, it’s hard for the under-21 crowd to get a card on their own (thanks to federal regulations that require independent income for those under 21). And it’s not possible at all for those under 18 to get a card on their own, period. So if your kid is still under 18, adding them as an authorized user is the path of least resistance.

“Kids can become authorized users on their parents’ cards well before they turn 18 or go off to college, which is not the case for student cards in their own names,” says Lyn Alden, founder of Lyn Alden Investment Strategy. “Most banks allow children as young as 15, or even younger, to become authorized users.” (Read: Banks’ minimum ages for authorized users)

Parental guidance: The authorized-user route may feel safer to parents. The card’s still in your name and you have total access to it.

“Adding a young adult child as an authorized user on your credit card gives you the ability to monitor your child’s spending behaviors and closely supervise how they use a credit card,” says Paul Golden, spokesperson for National Endowment for Financial Education (NEFE).

You might think of it as training wheels, an opportunity for you to monitor your child’s purchases and educate them if you think they’re making too many impulse buys.

“The parent gets the bill, and the statement lists the exact purchases that were made,” says Anna Flores, executive director of the nonprofit Credit Abuse Resistance Education (CARE). “The child can’t hide anything from the parents.”

Rewards and better terms: The card your kid will qualify for on their own will likely have inferior terms to what a parent with excellent credit will likely have in their wallet.

“Parents are usually in a much better position to get cards with better interest rates, lower fees and better rewards,” says Michael Lux, founder of Student Loan Sherpa.

Earning extra rewards on all your student’s textbooks may be another motivating factor. Plus, premium cards might allow you to share your lounge access with your kid, as well as other travel perks.

“Many cards offer no foreign transaction fees, which will help when a student studies abroad,” says Aaron Katz, an analyst at Growella.com.

Higher limits for bigger purchases: If your student gets a card on their own, their limit will likely be lower than what you have on your card, which could be a problem if you want your child to be able to buy plane tickets or other expensive items.

“Another benefit is your child will have immediate access to money if they experience an emergency,” NEFE’s Golden says. “However, discussions should take place ahead of time to understand what a true emergency is.”

Rhodes adds that the card shouldn’t be the first option for emergencies, however, and that your child building a small emergency savings account should precede them being given a card in any form.
“For a kid in college, just $500 in an emergency fund if the car breaks down or something like that,” Rhodes says. “That way, you’re not financing your emergencies.”

Cons:

Risks on both sides:
Parents are on the hook for all purchases, even the ones the child makes. That’s because banks don’t hold authorized users responsible for purchases – meaning the bank (and eventually, collection agencies) will come after you and you alone if your child charges more than you can pay.
“If your child is on your credit card, you ultimately are responsible for the Xbox, spring break road trips, and pizza and beer purchases that hit the card,” Golden says.

You may think your kid will treat your card with reverence and caution. However, NEFE research has found that 73 percent of college students engage in risky financial behaviors in college, Golden says.

Your kid is exposed to risk, too. Assuming the card reports authorized-user data to the credit bureaus, your card’s history will end up on your kid’s credit report. If you fall behind on bills, that could drag down your child’s credit score as well.

“It only makes sense for a kid to become an authorized user on her parents’ cards if her parents have strong credit ratings and payment histories,” Alden says.

Reporting issues: Credit reporting can get complicated for authorized users. Some cards don’t report authorized-user data to the credit bureaus, meaning they won’t help your kid build credit. And, even if you’ve confirmed your card does report authorized-user data, it won’t beef up your child’s FICO Scores as much as a card in their own name would.

Student card: Pros and cons

Banks have specialized cards designed for students in hopes that, once the student graduates, they’ll be loyal to the bank when they need loans and fancier credit cards.

If your child doesn’t have independent income and is under 21, the bank may require you to co-sign the card with your kid, making you jointly responsible for it.

Pros:

Lower limit = less room for trouble: Would you hand your kid $10,000 in cash and tell them not to spend it? You’re essentially doing that if you make them an authorized user on one of your high-limit cards.

“Trying to put in place spending restrictions that are far under the limit of the card may be hard to enforce, especially if your college student decides to one day go “rogue” with his or her spending,” says Justin Lavelle, spokesperson for background-check service BeenVerified.

A card your student gets on their own (and a joint card you you co-sign), meanwhile, will probably have a lower limit than the cards in your wallet. And that prevents your student from digging you both into a debt hole.

“If you make your student an authorized user on your credit card, you’ve given them access to your entire limit,” Rhodes says. “If you go with a joint card, you get a card with a relatively low limit, a $1,500 or $2,000 limit.”

Better for score-building: Authorized-user accounts aren’t guaranteed to help your child build their credit. And even if you add your student to one you’ve verified does report to the bureaus – and it raises your child’s score — a card in their own name will have a more sustained effect because they’ve established their oldest account (the anchor of excellent credit) on their own.

“For the long-term benefit of the student, getting a student credit card is definitely the preferred route,” Lux says. “…The oldest account is a key factor in your credit score. As an authorized user, if mom or dad close the account, that credit score benefit drops considerably.”

Makes students take the lead:
Being an authorized user on your card won’t give your student hands-on experience with tracking purchases and making payments.

“[With a student card], Students learn how to use and pay off a credit card on their own,” Katz says. “This is an important skill to have, far different from the debit card use they are accustomed to.”

Cons:

Less supervision: If your child hasn’t been properly educated in the perils credit, overspending on a card and missing payments can have a disastrous effect on your student’s credit for years.

If you don’t have access to the account, you may have no idea your student is sliding into trouble – and your kid may not know they’re in trouble either, until the damage has been done.

“It’s easy to lose track of how much money you’re spending on a credit card,” Flores says. “It makes it easier for you to make impulse purchases.”

Harder to get:
You’ll have to encourage your child to sit down and apply for a card (instead of just calling the bank as you would to add them as an authorized user). And there’s no guarantee they’ll get approved for a card (especially if they’re under 21 and don’t have income). If you aren’t comfortable entering into a co-signed-card arrangement with your kid, the authorized-user route may be the only path.

The case for the authorized-user route

It’s quick, it’s easy and it keeps you in control. The type of card you send your child to school with is a “personal decision,” Flores says, but, personally, she says, “I believe in baby steps.”

“Educating your child is the best way to get them used to managing a very small amount of money, getting used to paying bills by your rules,” she says. “Maybe they’re not responsible to the credit card company yet, but they’re responsible to the parent. It’s a good first step.”

But don’t just hand your kid a copy of your card and send them off.

“Parents need to set clear limits with their student regarding when they can use the card and even get the student to pay them by a certain due date so they establish good habits,” Flores says.

The case for the student-card route

It gives your kid first-hand experience in the daily management of a credit card and, arguably, is better from a credit-building standpoint.

If you’re worried about your child flying solo, be a co-signer. That way, you’re on the account, but your student is still jointly responsible.

“You don’t want to give them a power tool and let them cause damage right out of the gate,” Weitzel says. “So the way to protect against that is, Mom or Dad acts as a co-signer. You can have the statement mailed home and get online access so you can check the account on an ongoing basis. But you still make the student responsible for paying it.”

The case for … both?

“The good news,” Alden says, “is that parents don’t have to pick one or the other. Their kids can be authorized users on their card, and also go out and get their own student cards.”

Alden was added to her father’s card at age 16 and used the credit boost it gave her to get a low-limit card in her own name when she went to college. At graduation, her credit score was over 800, she says.

If you go the why-not-have-both route, you can work out a plan with your student about which expenses go on which card.

“I had the authorized user card for things my parents covered while I was still in school, such as groceries, transportation or a pack of new socks,” Katz says. “The student card was for things I needed to pay for on my own, like concert tickets, going out to bars after turning 21, of course, and other weekend activities with friends.”

Other tips

Whichever route you go, the credit card you send your kid to school with is just one part of a “much, much, much larger conversation,” Rhodes says.

So, before your child gets a card, discuss the following:

  • What your kid needs to accomplish first: You might say, “Yes, kid, you should have a card while you’re in college. But not until you’ve accomplished some other simple financial goals,” Rhodes says.

    This might include filling a small emergency fund and taking a personal-finance course at school.

  • Which purchases to put on the card: You don’t want to get your kid in the habit of using the card to stretch their budget for incidentals.

    “For example, do you want them to charge a cup of coffee? Or a pizza?” Flores says. “You may not want them to do that. It’s only four or five dollars, but it adds up.”

    That said, if your kid gets a student card, they need to actually use it to build credit. Payment history (making purchases and paying them off) factors into credit scores big-time, and a card collecting dust wastes that credit-building potential.

    “It’s not enough just to get a card and have Mom and Dad hang onto it or stick it in the drawer and use it only for emergencies,” Rhodes says.

    Instead, Rhodes recommends, encourage your child to use the card for books every semester (and then to pay those charges off with money from you, a job or from student loans).

  • Who pays: If you go the authorized-user route, or if you co-sign a card with your student, make it clear if you want your child to pay off purchases they make, even if they send money to you as the middle-man.

    “Also, it’s important that, if the student fails to meet set expectations, there must be consequences or penalties,” Lavelle says. “MasterCard will not give them another chance or cave to their “I love you’s”, begging and hugs!”

 
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