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With the new credit card law, college students under the age of 21, who don’t have sufficient income, will need a co-signer to get a student credit card. Many parents may be reluctant to take on the responsibility of co-signing a credit card, since it puts them on the hook for junior’s unpaid credit card bill.
On the other hand, in our modern-day world, life without plastic is hard—credit cards are not just a modern-day convenience, they are a necessity when making purchases online, booking a flight, renting a car, and so on. Plus, most parents will want the certainty of knowing that their kid has access to emergency funds while away at college, should the need arise.
Fortunately, if the thought of co-signing a credit card for your college-aged kids doesn’t appeal to you, there are a several viable alternatives, which will give your college-bound kid all the advantages of plastic. These include not just access to credit, but also the ability to begin to build a credit history, while minimizing the drawbacks of credit cards. Here are our picks for the best alternatives for student credit cards:
Consider a Charge Card
With the proliferation of credit cards, charge cards may seem like almost a thing of the past. American Express, however, still offer several types of charge cards: the American Express Preferred Rewards Green Card and the American Express Preferred Rewards Gold Card.
Charge cards in some ways are ideal for starting kids out using plastic. They offer all the conveniences and protections of credit cards. At the same time, because the balance has to be paid off in full at the end of the month, they force users to plan ahead and develop financial discipline. Also, because balances are paid off in entirety by the due date, there are no interest charges, and your child can’t get hooked on the minimum payment habit. If the bill is not paid on time, late fees and other penalties may ensue, and the user’s spending ability will be lowered.
Charge cards these days come with “no preset spending limit,” a scary-sounding thought to most parents. However, “no preset spending limit” doesn’t mean that “no spending limit.” Rather, charges get approved at the point-of-purchase, based on the cardholder’s previous spending and payment history, financial resources, and credit record.
Having a charge card lets cardholders begin to build a credit history, as well as a relationship with American Express, which will make it easy to get approved for a credit card down the road—as long as your kid keeps up with the monthly payments.
The main disadvantage of the American Express charge cards is the cost. The Amex Preferred Rewards Green Card comes with a $95 annual fee; the Gold Card with a $125 annual fee. Still, for the peace of mind charge cards afford parents, some may find it worth it to pick up the tab for the fee.
In addition, getting approved for an Amex charge card may not be a slam dunk, if junior doesn’t have an income. Applicants under the age of 21 are required to provide information about total annual salary and other income, which according to Amex representatives, can include grants, loans, and money from parents.
Consider an Authorized User Credit Card
Another option is to make your kid an authorized user on your credit card, something which most all credit card issuers allow. Parents who share their credit card account with their student can easily track purchases, help their young adult child build a credit history, and make sure that junior stays within a pre-agreed credit limit.
Authorized credit cards also enable you to put a credit limit on the authorized user’s account, an important protection. However, this protection works differently for different card issuers, so check with your credit card company first to make sure that they will actually decline charges above a certain spending limit.
Sharing an account provides many chances for interacting about finances, and advising your kid about proper credit card usage. However, not all parents may wish to be that closely involved in their college-aged kids’ finances, in which case, this is probably not a great option.
There may also be fees for the extra card, and limitations or premiums associated with ATM use. In addition, you will be legally responsible for whatever charges your kid incurs, which could become a problem if you fail to put a preset spending limit on the account.
