Pack college kids off with money smarts

Published 8:16 pm Sunday, July 25, 2010

Thanks to credit-card reforms kicking in during 2010, card issuers will have a tougher time getting teenagers on college campuses to apply for plastic without their parents’ knowledge.

But what about now? Students will arrive on campus in August and card issuers will be there to greet them at many schools. Will card companies make one more big final push to sign up students?

“Issuers will try to continue to market to college students between now and the time the legislation takes effect,” says Bill Hardekopf, chief executive of LowCards.com, a Web site that tracks credit cards.

If your kids are headed to college, don’t let them leave home without lessons on money management. That means teaching them to budget and handle a checkbook and debit card before they graduate to a credit card. Even after the credit-card reforms take effect, students are going to need these lessons.

Card issuers target young adults because people tend to be loyal to their first card, says Christine Lindstrom, U.S. Public Interest Research Group’s higher education program director. Plus, young adults are more likely to carry revolving debt and pay late, generating more interest and fees for the card issuers, she says.

Reforms that take effect in February 2010 prevent card issuers from extending credit to applicants younger than 21, unless they show they have the means to pay the bills or they have a co-signer, who will repay if they don’t.

Card issuers also will need a co-signer’s approval to increase credit limits if the cardholder is under age 21. And card issuers won’t be allowed to offer T-shirts or trinkets on campus to entice students to apply for cards.

Some credit experts say students need a credit card to start building a credit history and credit score. But there’s no need to rush this. And it can backfire if students mismanage cards.

Young adults should worry less about their credit score and focus more on establishing good financial habits between ages 16 and 21, says Craig Watts, a spokesman for FICO, the company that created a widely used credit score.

“The credit score will take care of itself,” he says.

A survey released in April by Sallie Mae indicates that many young adults aren’t savvy managers of credit. The survey of undergraduates in 2008 found that 82 percent racked up finance charges by carrying monthly balances and 40 percent use their cards knowing they didn’t have money to pay the bill.

If your children are going away to school soon, start them off with a checking account and a debit card, where money is pulled directly out of their bank account with no interest charge. After a few years of living on their own, paying bills and managing credit, they can apply for a credit card under their own name when they turn 21.

Distributed by the Los Angeles Times-Washington Post News Service.