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Personal Finance > Credit & Debt

Get an A+ in plastic
You know your kids are going to get some plastic. Here's how to be smart about it.
August 16, 2004: 2:48 PM EDT
By Jeanne Sahadi, CNN/Money senior writer

NEW YORK (CNN/Money) When it comes to teens, credit cards are a little like sex. You can bet many will start experimenting when they get the chance.

When they ship off to college, they're likely to get a barrage of credit card offers despite the fact that they have no income.

Having a credit card can help students build a strong credit history and sound financial management skills -- if they consistently pay off their balance in full and on time.

A solid record can come in handy given that lenders, insurers, landlords and employers often check a person's credit.

Robert Manning, author of "Credit Card Nation" and a professor at the Rochester Institute of Technology, tells students, "Your credit score is as important as your GPA."

But if credit cards are handled poorly, it can cost your kids dearly for years to come. Manning estimates the average public university student graduates with between $2,000 and $5,000 in credit card debt, and up to $20,000 in student loans.

The credit card debt load might be higher, he said, but for the fact that many students use their loans to pay down their credit card balances.

Take it slow

If you think your children might have a hard time handling a credit card, Manning recommends setting them up with a debit card first, at least for their first semester of freshman year.

It looks like a credit card, so they won't feel out of sync with their plastic-flashing friends. While they won't build credit using it, they won't damage it either since the money is taken directly from their bank account.

He also recommends that rather than one lump sum, you send them money monthly, so they can't blow it all at once.

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Once they prove that they can handle their debit card responsibly, you might support them in their desire to get a credit card.

There are plenty of student credit cards available. But Manning thinks you might be better off helping them get a card at your local bank.

Here's why: Student cards tend to start off with low limits typically $500 to $1,000. But increases are relative easy to get, which can increase the temptation for a student to spend. Plus, interest rates tend to be higher than average 20 percent isn't uncommon.

Your own bank, on the other hand, may be willing to offer your child a card with a low limit and cheaper terms than are available on student cards. And because it is giving a regular credit card to a student with no (or very low) income, it will be less likely to raise the credit limit easily, Manning said.

That's why Manning doesn't think parents should co-sign on credit cards with their college kids. If a credit card issuer knows you're there to back them up, it is more likely to raise the credit limit.

If your children work on campus, he said, another option is to join the university's employee credit union, and get a card through the union since it's likely to offer better rates and fees than a big bank.

Plan B

This assumes a lot, of course: that your bank and your children will go along with your plan and that your favorite Phi Betta Kappa will not be tempted to get another card at his first fraternity party.

If so, great. If not, at least try to help your kids be smart about the cards they do pick.

First, avoid cards with annual fees. Most student cards don't have them, so there's no reason to pay one.

Next, avoid rewards cards at least until your kids have a year of good payment history under their belts, said Curtis Arnold, founder of, a consumer review site. The temptation to spend to get those rewards may prove too much to resist.

If they do get a rewards card, beware cards that promise cash back but only offer the maximum amount if you carry a balance, Arnold said.
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Last, avoid cards with annual percentage rates of 20 percent or more. The APR should be immaterial since the plan is to pay every balance in full and on time. But if your child slips, why pay more of a penalty than necessary?

Having said that, you might offer Arnold's best advice to first-time users: "If you can't pay it in full the first month, cut it up."

A few picks

Here are a few cards that meet these criteria, have gotten reasonably favorable customer reviews on and are identified by as being among the best in terms of annual net costs if the cardholder carries a $500 balance and charges about $100 a month:

  • American Express Blue for Students
  • CitiPlatinum Select MasterCard for College Students
  • Discover Classic Student Card

But no matter how favorable a card's terms, your child should remember three things:

  • Credit card issuers are tapping the student population with the hopes of building lifelong relationships.
  • They're in the business of making money off their cardholders.
  • So if students don't manage the card well, they'll be slammed with high late fees, penalty rates and a battered credit history that will dog them for years.
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