Credit and debit cards are part of the fabric of life for most Americans these days.  With the rise of online shopping, and the increasing use of automated services, credit cards are more than a convenience.  College students, too, are using credit cards; and many students use those cards wisely as they learn to manage their own finances.

How do students use credit?

Before you begin to think about your own student’s use of credit, it may be helpful to have a picture of how college students in general use their cards.

The 2016 Experian College Graduate Survey found that 58% of college graduates had at least one credit card and approximately 30% of graduates had some credit card debt.  The average balance carried by students was $2,573. The average number of cards held by students was 1.35.

Here are some additional statistics gathered through studies conducted by Sallie Mae and Experian in 2015 and 2016.

63%     The number of students who pay the full amount on their credit cards monthly.

3%       The number of students who pay less than the minimum payment on their cards

15%     The number of students who said their parents make their payments

47%     The number of students who know their credit score

33%     The number of students who have made a late payment

31%     The number of students who have maxed out their cards

$531    Average monthly charges put on cards

It is interesting to compare these numbers with statistics from a 2008 study by Sallie Mae which found that 84% of students had at least one credit card (vs.58% in 2016) and 17% paid the cards off each month (vs. 63%).  7% of students paid less than the minimum each month (vs. 3%), and the average number of cards held by students was 4.6 (vs. 1.35). The average balance carried by college students was $3,173 (vs. $2,573).

Clearly, the credit picture for college students has improved in the last ten years. One important factor is the Credit Card Act of 2009 which, among other provisions said that students under 21 can only get a credit card if they earn their own income, have a cosigner (usually a parent) or are an authorized user on their parents’ card.  This provides more control over college student credit spending. Fewer students are lured into high-interest credit cards without their parents’ knowledge.

Is having a credit card a good thing?

Having a credit card during college can be important and can provide invaluable opportunities to help your student learn about responsible spending and use of credit.  There are important reasons why having a card may be necessary.

• Having a credit card can provide peace of mind in case of emergency. Whether it is a medical emergency, a car breakdown, need for an unexpected plane or bus ticket home, having a card can be essential.
• Credit cards are often needed to make purchases online. Today’s students (and many of the rest of us) make an increasing number of our purchases online, including things like textbooks, clothing, and personal necessities. Having a credit card is convenient and helps your student avoid having to reach out to you for each expenditure.
• Having a credit card, and using it responsibly, helps students to build a credit history, something the student will need when he graduates.
• Using a credit card wisely may take practice, and doing this with some supervision and a lower limit credit card while in college may the ideal way to do so.

What can you do to help your student learn to use credit wisely?

Many students will need parental guidance to learn to use credit wisely.  As with general financial literacy, most students are happy to be mentored by parents.  So there are several things that parents can do to help.

• Talk to your student about credit cards, debt, and financial planning. Discuss carrying a balance and ways to reduce debt.  Make sure your student understands the implications of not paying in full, of continually paying only minimum payments, and understands concepts such as revolving credit, annual percentage rate, and compounding interest.
• Encourage your student to think about needs vs. wants and how the credit card will/should be used.
• Discuss with your student whether or not you are willing to help out if she goes over her credit limit or is carrying a balance.
• Help your student find a low limit card to begin, or add your student as an authorized user to your credit card. This will allow you to track spending, discuss use of the card with your student, and remove her as a user if necessary. Remember, though, that any misuse of the card may affect your credit history, not your student’s.  Work toward the goal of your student having her own card.
• Consider a secured credit card. This card will require a deposit, which then becomes the credit limit for the card.
• Help your student understand the importance of a strong credit history and make sure that she knows how to check her FICO credit score. Remind her that approximately 15% of her credit score is based on credit history.  Help her understand why a good credit score matters when she is looking for an apartment, car loan or insurance, or even a job (some employers will check credit score of applicants).

College students may find it thrilling to have their first credit card.  It is, for many, a symbol of adulthood and independence.  Help your student think carefully about the values and the responsibility of having a card.  With everyone on the same page, with some mentorship and guidance, you will be helping your student on the path toward building strong financial habits for the future.

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