Credit cards for college kids becoming more of a focus

More parents today are left to think about the impact various lines of credit might have on their college kids, and there is a lot to take into consideration given the current economic climate.

In the final month and a half before the fall semester begins, many young adults are in the final preparatory stages as they head off to college, and that may leave many of their parents wondering about their financial wellbeing when they're living on their own, according to a report from The Associated Press. In the past, many parents were content to help their kids out financially by giving them access to the family credit card, or even allowing them to obtain such an account in their own name.

And though many lenders are now significantly opening their card offering efforts to consumers who might have subprime credit ratings, issuing is still nowhere near the levels it was prior to the recession, when nearly anyone could qualify for a new account, the report said. However, perhaps the biggest hindrance to consumers under the age of 21 getting new lines of credit in their own name is that federal law now requires that they meet more stringent qualification standards. For instance, young adults must now either have an adult co-signer on the account or otherwise provide evidence that they can afford to pay off any balance they might rack up themselves. The law also changed the rules for how these accounts could be marketed to those under 21.

But now, given the current financial climate in the U.S. and the reluctance among many major lenders to broaden their credit qualification requirements, the options many parents leaned on years ago are simply no longer available to teens, the report said. For instance, many families are still facing significant economic strain even as their personal finances improve, as many may have made missteps with relation to their credit accounts, and many are now either dealing with higher-interest accounts that are more difficult to afford, or simply locked out of the borrowing system altogether.

Caution playing a key role as well
In addition, the financial constraints brought on by the recession may have also led many parents to simply rethink their family's reliance on credit in general, the report said. Many Americans changed their borrowing habits significantly as a result of the recession and don't approach the use of credit the same way they may have prior to the recession. Many are now more cautious, particularly when it comes to giving kids access to accounts they have little actual practice handling, and therefore aren't comfortable either getting their child a credit card of their own by co-signing on it, or adding them as an authorized user on an existing account.

"I don't think anything related to debt belongs in the hands of a college kid," Robyn Kahn Federman, communications director of a marketing agency and mother of a 19-year-old college sophomore, told the news agency. "The vast majority are not experienced enough with money or cognizant enough of the risks."

With that in mind, many lenders are now giving teens another option for keeping track of their finances when they head off to college, and it's proving quite popular, the report said. Prepaid debit cards are typically available to younger borrowers because they do not require credit checks and in some cases may be less expensive to maintain than traditional bank accounts. However, many college students who were hoping to use their credit cards responsibly and therefore build a strong credit history while they were still in school will find these cards unhelpful in doing so, as they do not report their status to the major credit scoring bureaus.

Further, prepaid cards usually come with a number of fees for specific types of use that may prove expensive given some habits users have, the report said. For this reason, it is vitally important that consumers do research into which cards will cost them the least given their personal usage practices. This is true of any type of accounts and all consumers, whether they are seeking prepaid debit, secured credit or traditional credit cards.

College students tend to have a limited borrowing history, and therefore usually need their parents to co-sign on a new credit card if they were to obtain one. However, parents should first take the time to check their own credit reports to make sure their personal credit ratings are as they should be. Occasionally, errant markings may be taking an unforeseen toll on their credit scores, but working with a credit repair law firm can help them to remediate these problems and return their standings to where it should be.