Stock investing for dummies – How Parents And College Students Can Use Secured Credit Cards

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Now that consumer protection laws have stepped in to curb credit card abuse by young adults, applicants under the age of 21 have to jump through additional hurdles to obtain a credit card.

Under the Credit Card Act of 2009, credit card companies cannot hold young adults responsible for their credit card bill unless they earn sufficient income or have a co-signer. And that’s a hard hurdle to clear for most college students who may only have part-time employment.

While these laws offer protection to young adults from credit card abuse and unfair practices, it also makes them dependent on their parents by requiring a co-signer if they do not have sufficient income.

In order to teach good spending habits and prevent surprises in the form of over the limit fees, parents will benefit from using secured credit cards with their young adult students.

People often associate secured credit cards with bad credit, but that is not always the case. Secured credit cards serve as a useful tool for parents to monitor their children’s spending habits and tame the situation before it gets out of hand. Young adults should avoid making major credit card mistakes early in order to preserve their credit history.


What Is A Secured Credit Card?

Secured credit cards offer a credit limit equal to the amount you paid into the account as a deposit unless you specify a different credit limit. The credit is established in the student’s name.

A secured credit card may have higher rates and hidden fees.

If the student doesn’t pay bills on time, they will be building a poor credit history, which is worse than no history. Still, parents can set a credit limit and monitor the account to make sure bills are paid on time and the balance stays under the limit. 

Questions To Ask When Searching For The Best Secured Credit Card

Before applying for a secured credit card, do your homework and consider all factors that would result in unexpected fees and costs.

  • What happens if the student exceeds the set secured credit limit? Will there be an over the limit fee, or any other fee or will the card be frozen until the balance is brough below the credit limit?
  • Is there a fee for getting an extra card, or adding a user? Keep it simple by having one student per card, and beware of fees for extra cards or extra users.
  • Can you raise or lower the spending limit at any time?
  • Will the card work in an ATM? If so, what are the ATM fees?

How To Get the Most Out Of Your Secured Credit Card

Now that we have weighed the pros and cons of a secured credit card, how do you use the card to make the most out of building credit for a new account?

  • Avoid carrying a balance. This is particularly important with secured credit cards, since the APR will probably be high, so be sure to pay more than the minimum amount to save on interest and demonstrate financial responsibility. 
  • Use the card as a barometer. Based on the student’s spending history, parents can set a budget and allowance. This is also a good time to discuss financial responsibility and good spending habits.
  • Set a credit limit with flexible limits. Decide on a credit limit from the onset, and adjust as neccessary. How much does the student really spend each month? Based on history, how much does the parent need to allow for emergencies or unexpected events?
  • Don’t miss any payments. If you miss payments, you can accrue penalties and late fees, but it will also impact your credit score.
  • Use the card every month. To establish credit history, you must use your credit card consistently. Pay recurring bills with the credit card, and then pay off the balance each month.

Now that you know what to look for in a secured card for college students, here’s our list of the best secured credit cards.​

Whether you’re just starting out or rebuilding your credit, we recommend getting a secured credit card as a first step to building good credit for young adult students.

Have you ever used a secured credit card? Tell us about it in the comments below.

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