Dear Consumer Ed:
My daughter is starting college in the fall. I want her to build up her credit. How can I help her choose the best credit card?
Consumer Ed says:
It will be beneficial for you and your daughter to shop around and compare credit cards. You can use a website, like Bankrate.com, which allows you to compare different credit cards simultaneously. Compare annual fees, interest rates, delinquency fees, and gifts/rebates. Some cards offer an introductory interest rate, but you should be aware that the rate eventually goes up. Introductory rates may apply only to balance transfers, new purchases, or both. Some interest rates are variable and others are fixed. Be sure to find out whether the interest rate increases if your daughter is late with a payment. There could also be a penalty fee for late payments, depending on the credit card. Some offer a grace period before the late fees apply. Another important factor you should consider is the credit card limit. Federal law prohibits credit card issuers from charging an over-the-limit fee unless the customer opted-in to have over-the-limit transactions processed. Otherwise, any transaction that would exceed the credit limit will be declined.
You should also be aware of regulations regarding credit cards that specifically affect people under 21 years old. Under Federal law, a credit card company cannot issue a credit card to someone under 21 years old unless she has submitted a written application for the credit card and she either (1) can prove she has the independent ability to make the required minimum periodic payment or (2) has a cosigner, guarantor, or joint applicant who is at least 21 years old. That cosigner, guarantor, or joint applicant will either be secondarily liable or jointly liable for any debt incurred on that credit card. Additionally, your daughter’s cosigner, guarantor, or joint applicant might have to provide financial information showing that the cosigner, guarantor, or joint applicant has the ability to make the minimum required payments. The final provision you should be aware of does not allow your daughter’s credit line to be increased before she turns 21 unless the cosigner, guarantor, or joint accountholder agrees in writing to assume liability on the increased limit. This final provision does not apply if your daughter opened the account and provided information showing that she has an independent ability to make the required minimum periodic payment.
Here are some tips you can share with your daughter to encourage her to be a responsible credit card user:
- Do not charge more than what you can afford to repay each month.
- If you cannot pay your bill in full, try to at least pay more than the minimum payment.
- Always pay your bill on time (it must reach the company by the due date).
- Use your card for emergencies and not for entertainment.
- Consider paying cash for items under $50.
- Stick to a budget and don’t buy what you can’t afford.
- Review your bill every month and contact the company immediately if you have questions or see any charges that you do not recognize.
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