Credit Cards for College Kids

BELIEVE IT OR NOT, it's actually somewhat impressive that your daughter has remained card-free for this long. These days, 36% of college freshmen have a credit card in their name, according to research firm Student Monitor of Ridgewood, N.J. And 79% of this group got their card before college even started. And since college students now receive a credit-card solicitation nearly daily, it's not surprising that 52% of college students graduate with at least one card of their own.

And while opening a line of credit at an early age could set the stage for a lifetime of debt, many credit experts nonetheless say that having a credit card during the college years can be a smart move. For starters — as you mention — a credit card is obviously a handy tool when things go wrong (i.e., the car breaks down). But if used prudently, it's also an easy way to begin to establish a credit history. Ironically, credit-card companies are now much more willing to give credit to a college student than to a recent graduate who has no credit history at all, says Gerri Detweiler, author of "The Ultimate Credit Handbook." (The card companies say that college students are better credit risks than the general population, Detweiler explains.) And certainly, for those just entering the work force, having a solid credit history will make things like renting an apartment, buying a car and in some cases, even getting a job, much easier.

Now, as far as establishing a credit history for your daughter is concerned, it doesn't much matter whether she gets a card on her own or you co-sign the card with her. But you should keep in mind that with a co-signed card, any outstanding debt, late payments or defaults will show up on your credit report, Detweiler says. For that reason, you'll want to make sure that all the paperwork comes to you. After all, emergencies can quickly become redefined, says Robert Manning, author of "Credit Card Nation." "It may start off with 'Grandma is sick and I've got to get an airplane ticket,' but then fall to 'It's the last concert of the Rolling Stones and I can't miss it!" he warns. Parents often aren't aware that there's a problem with the account until damage to their own credit history has already been done.

Much of this, of course, rides on the trust you have in your daughter and her own budding personal-finance skills. Unfortunately, since kids often aren't educated by their parents or in school about how to manage money, many college students graduate with a mountain of high-interest debt. Combined with today's lousy job market and other student-loan debt, that has helped make the under-25 crowd the fastest growing group of bankruptcy filers, says Manning. To help minimize the potential damage, your daughter should probably get a card with a relatively low spending limit of, say, $500. You should also make sure she understands the importance of maintaining a clean credit report. "It's like a report card that will follow you around for seven years," says Detweiller. So this is one course she doesn't want to fail.

For more on students and credit cards, see our previous Ask SmartMoney. Click here for more on debt management in general