5 Key Pieces of Advice Parents Should Give To Their College-Age Children

When parents accompany their children to college, the day is usually spent packing, unloading and saying goodbyes. While parents might give their children a new computer or TV, they should also consider leaving them with advice about maintaining and building their credit history. Although college students might not give much thought to increasing their credit score in college, once they leave the hallowed halls of academia, they need a good score to qualify for loans, credit cards or a mortgage.

To prepare their children for the real world, parents should tell their children the following about credit:

Keep Track of Payments
Although it seems obvious to pay bills on time, college students are often too busy studying for classes and socializing with friends to actively keep track of their finances. Losing track of time and failing to make payments could impact their credit score. Parents should recommend their children pay their bills on time and resolve any missed or late payments in order to keep building up their score. An easy way to make payments in a timely manner is to set automatic payments so the right amount of money is immediately withdrawn from their account on or before the due date.

Maintain a Good Credit Utilization Rate
When young adults get their first credit card, they might see a $2,000 credit limit and think it's okay to spend up to the very last penny on their card. However, they need to be aware that credit card utilization rate – a major factor in determining their credit score – is affected by their balance in relation to their credit limit. When first-time credit card users spend up to their credit limit, they might not be able to pay off their balance every month and could be at risk for late payments that could affect their credit score even more. Even worse, as lenders see a high credit card utilization rate from having a large balance, they might view consumers as more of a risk. Parents should suggest their children have a credit card utilization rate of 30 percent or less in order to keep a good credit score.

Make Small, Manageable Purchases
Although parents often caution their children to use their credit cards only for emergencies, they should remind them of the importance of building their credit through making small purchases to keep their credit lines active. Textbooks, school supplies like binders and notebooks and dining out are often what college students charge using their credit cards. It's important to spend money on small purchases in order to keep their overall credit card utilization rate positive yet moderate.

Choose the Right Credit Card
When college students are eligible for credit cards, there are a variety of options – from cards offering cash back rewards to miles for traveling. Although these incentives might seem appealing, parents should remind their children to choose cards that have a low annual percentage rate, or interest rate, to be able to afford their monthly credit card payments.

Other Ways to Build Credit
While college students might think a credit card is the only way to grow their credit score while they are in school, there are other options that will help them increase their financial standing. Some college students might not be approved for a regular credit card because of their short credit history but a secured card is a great alternative. A secured card is available to those with poor or no credit and allows students to build credit by depositing money into an account that not only acts as collateral but also sets a spending limit. Students should be sure to choose a secured card offered by a financial institution that reports activity to the three main reporting credit bureaus in order to have the full benefits of a secured card.