It's back-to-school time, and your college-bound offspring is in for some big changes. New roommates, a new campus, new freedom, and maybe even new credit cards.
That's right -- long before your college freshman has her first exam, she'll probably be besieged with offers for credit cards, very likely right on campus on her way to the cafeteria.
Unfortunately, many of the credit card deals offered on campus aren't deals at all. They have high interest rates and high credit limits. A survey by Bankrate found that the average student credit card had a 17.66 percent rate for purchases and a 19.67 percent rate for cash advances.
But high rates aren't stopping students from signing up. According to student-loan provider Nellie Mae, 83 percent of undergraduate students have credit cards. The average credit card balance is $2,327, up from $1,879 in 1998. And 47 percent of undergrads have four or more cards, Nellie Mae says.
The fact that your child may not even have a job won't matter to lots of card issuers. They want to make a buck off of her inexperience with credit. Before the vultures descend -- and before your child winds up thousands of dollars in debt -- take these four steps to put her on the right credit track.
1. Share your own experiences.
No matter how well or how poorly you've handled your own credit cards, you can teach by example. If you've had a squeaky-clean credit history, explain to your child how you've been able to do it. Even if you've let interest charges pile up, you can set a terrific example for your child. Pull out a few credit card statements and show her how much money you're paying in interest charges. Tell your child that the $150 (or whatever you're paying each month) means there's that much less to spend on new clothes or pizza or whatever your child likes to buy.
2. Run the numbers.
Sit down at your computer with your child and visit Bankrate.com's credit card payment calculator. Show your child that a $200 dress, at an interest rate of 19 percent, will take you an entire year to pay for, and will ultimately cost $221 if you contribute just $20 a month. And that's only if you don't charge anything else on the card. Play with some other numbers to get an idea of how much interest a few purchases can generate or just how long it takes to pay down your debt when you're only paying the minimum $10 or $15 monthly.
3. Veto vanity cards.
If your child is interested in a card primarily because a favorite sports team or pop group is pictured on it, teach her that there's more to a credit card than what's shown on its face. If its terms are good, then by all means go for the cool-looking card. But if its interest rate towers over a plain vanilla card, run the numbers again and show your child how much more she'll be paying for a vanity card. When she sees the difference, she'll probably agree it's not worth it.
4. Shop for a card together.
Before your college-bound child leaves for campus, shop for a card together. Don't let her get sucked in by a high-interest-rate card she may be offered at school. Instead, sit down together and search for the best deal.
And when you find a card, request a relatively low credit limit -- say $300 or $500. Nellie Mae says the average undergraduate student has a credit limit of $3,683. Consider the potential damage that such a high limit can do.
By helping your child steer clear of credit problems, you're giving her an education she won't get at college. And your credit card lessons are likely to stay with her longer than anything she learns in her mythology class or linguistics seminar.
Karin Price Mueller is the author of Online Money Management (Microsoft Press, 2001).