First Credit Card

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First Credit Card

My daughter is 19 years old, in her second year of college, and currently debt free. She has already paid for her 1996 car. Her college tuition, room and board, and books are paid by a partial scholarship, grant and a R.A. job. She receives no money from her R.A. job. It all goes to the school for expenses. Grandma sends her a small amount of money every month for toothpaste, etc. So she is making it. She wants to get a credit card. Of course, that just about made me run screaming! I have so much credit card debt! Should she get a credit card to try to start a credit rating or run the other way? She says they are always passing them out at school. Any ideas?
Ann from KY

Absolutely Not!

She should absolutely not get a credit card for day-to-day expenses. If your daughter is "making it" financially, she is learning a valuable lesson about living within her means. If she really feels she wants a credit card, I suggest a "pre-loaded" one that is pre-paid for a certain amount ahead of time, and when the balance is gone, it's gone until more money is put on the account. It is more like a debit card than a credit card. If your daughter opens a regular credit card account, the temptation is so great to use it here and there for a cup of coffee, new shoes, etc. Unless your daughter is so responsible she will only use the card for true emergencies, and pay it off in full every month, she is likely to graduate with a college degree and a mountain of debt!

Who Will Pay the Balance?

How is she going to pay the balance? Her money from her job goes directly to the school, so she has no cash. Are you going to pay it? Is Grandma going to pay it? It just doesn't seem wise to open a credit account without a "cash" income to pay for it. While tough, she is making it now and would do well to wait until she is out of school and has a paying job to start dealing with credit and payments.

Tell Her to Wait

Yikes! I remember those days all too well. There were dozens of booths all over campus, handing out a free t-shirt, frisbee, or cooler cup "just for filling out this one piece of paper." I had so many friends that filled them out because they were told that it would be a great way to start their credit rating since it would never be so easy to get credit again. They are now in so much debt! It always started with one card that gave them a $500 limit, for "emergencies." Emergencies would range from needing gas and car repairs to running out of Cheetos at 1 a.m. and having to get them at the corner gas station for $6 a bag. Then there would be a "must have" night at the bar and so on and so on. That $500 got used up pretty quickly, especially since we were all "getting by" and didn't have any real money. So they'd get another card to get money to help pay the first one and so on. It wasn't pretty.

Lucky for me, I was raised by a grandmother who'd seen two world wars and a depression and had raised two families of kids, all without ever having debt. She told me that you can't get a good credit rating if you don't have the money to pay back what people loan you. She also told me that times were different when she was my age and that I needed to "establish" myself, but she told me how to do it right. I waited to get my first credit card until my senior year of college, after I had my first "real" job lined up. I still got the easy credit, which I used to help buy some things for my first apartment, but I also had money to pay the bill in full each month as it came. Tell your daughter to wait. She has plenty of time to establish a credit rating and there are a lot of things that are worth going into debt for more than a free t-shirt.

Banker's Recommendation

I am a personal banker for a well-known bank. I strongly recommend that your daughter get a student credit card that starts out with a low credit limit based on your daughter's year in school. Most prefer that you have at least $200 or so after monthly expenses. The limits range from $600 to $2000. (The higher limit mainly for graduate students.) I suggest to my student customers to buy a tank of gas (or any small item purchase) and then a few days later pay the balance online. After doing this for 12 months, they will have built a good history of payments and learn how to balance and pay items in full each month.
Gwen C.

Tell Her to Run!

I run a consulting business that teaches the principles of wealth accumulation through debt-free living. When I read the first paragraph of your question, my response was, "All Right! Way to go daughter!" The second paragraph made my blood run cold. Please, please advise your daughter against a credit card. 98% of my clients have so much debt that it will take them 7 to 10 years to pay it off. She is in a wonderful place right now. She is living within her means and getting an education. These two principles alone are extremely valuable.

Tell her if she stays out of debt and continues to live within her means, she will be able to retire earlier than age 65, own her home and always pay cash for new appliances, cars, and vacations. The financial freedom in this far out ways a credit card. A credit card is not a status symbol. It is a symbol of addiction in our country. We are spending money that is not our own. As for me, my husband and I became financially independent by the time we were 42. It was not done by a huge salary. It was done by saving our money, living on 60% of our income (or less) and by investing in funds or stock funds. Please tell her that credit is a horrible way to live and I have over 213 clients that will back me up!

Forget the Card!

So, she's debt free and has no income? Forget the card. The offers sound really enticing, but if she has no income, then how will she pay for anything she charges? That's just inviting disaster, and she doesn't need the temptation. She will have plenty of opportunities to build credit once she graduates and gets a good job!

Get One with Small Limit

Credit is the curse of most people's existence today. However, if she really needs one for emergencies, get one that has a small limit of maybe $200 on it. Never raise the amount until financially able to do so. You can tell the credit card company to lower your limit. You don't have to have the $2000 limit on a card. If they won't do that, then find another company. Even $200 is hard to pay back if you are always broke, but she'll have to learn not to spend on it unless necessary.

Allow Her to Build Credit

The 19-year-old should absolutely get a card! She sounds like me! I am a 23-year-old college graduate. I worked my way through college and made it through all four years without any debt. I was a RA for three of those years and worked very hard to keep my 3.8 GPA up so my scholarships paid for the rest! I attended a new, tiny private university in the south so I guess I never really saw those credit card people. But if I had, I probably would have stuck my nose up at them! My parents never use their credit card unless it is an emergency. I am now married and happily living a frugal lifestyle with my sweetheart. He has excellent credit due to his use of credit cards, but I still am unable to get a credit card! We recently bought our first home last year, and only by the excellent credit my husband had, we were able to get it! It sounds as though this girl is extremely responsible and should be trusted to build her credit.
Amanda in Buena Vista, Virginia

Stir Your Daughter Clear

"If she ain't broke, don't fix her"! Or she may end up broke and starting life off with unnecessary debt. My daughter was fine too. She went to a less expensive school, worked at a part-time job, and received scholarships and grants.

Everything went smoothly until her second year of school when I succumbed to her begging me for just one credit card (in case of emergency). Up to this point, I told her to save her money and just use her debit card like a credit card when she need to "charge" something. She had showed herself to be very responsible with her money and the little bills she did occasionally incur were always paid promptly. I told her to only use the one card for emergencies. I told her under no circumstances was she to get any more cards! They were not necessary since she knew how to stick to a budget. Well, later, I found out that she reasoned she could handle just one more card since she knew how to stick to a budget.

To cut to the chase, one day, I accidentally found out the amount of debt she had managed to accumulate. I was shocked and immediately sat down with my daughter as soon as she got home. She now is working full-time on the second and third shifts to pay off her debt. She learned the hard way and is now in debt but will be able to pay off everything with her next income tax return. She has cut up her cards and closed the accounts. She still gets bombarded with credit card offers, but they all are shredded into the round file. She still has one more year to go to finish her schooling. She is grateful to finally be relieved of this unnecessary burden and she now gladly uses her debit/credit card only when absolutely necessary.
Fellow Dollar Stretcher in Massachusetts

Advice from a Debt Counselor

This is a loaded question. I have counseled many families with massive personal debt (mostly credit) and found one main commonality, which is a colossal lack of self-discipline!

I will forego the extended diatribe on the evils of easy credit, and say only this. If you are certain she can be disciplined in her use of it, then one card with a small limit (no more than $500) could be obtained for the following reasons only:

1. establishing credit,
2. securing (but not paying for) hotel rooms or rental cars, and
3. emergencies (but an Emergency Fund is better).

For the sake of "establishing credit," she could use the card to pay for items usually paid for with Grandma's money, and then use the cash to pay the credit card bill. That way, she knows she has the money to pay it off every month.

However, unless she's a highly unusual child, I do not expect that kind of discipline from a 19-year-old. If you're not absolutely certain she can handle the responsibility now, I would tell her either to get a better-paying job, or wait until she graduates. I've seen too many kids come out of college with huge credit card debt, and it's nearly impossible for them to get on their feet.
Brad in Georgia

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