I'm drowning in credit card applications — not for me, but for my college student.
Hardly a day goes by without at least one landing in my mailbox. I like to peek at the offers, but with so many, it's hard to determine the bad deals from the ones that might get a passing grade.
This is a prime marketing season for banks and other credit card issuers that are trying to pick up business from college students and other 20-somethings.
Judging by my mailbox, card companies have gone much more heavily to direct-mail marketing to attract youthful customers. Chalk it up to regulatory reforms that now prohibit institutions from setting up shop on college campuses and giving away T-shirts and other stuff to get your student's signature on an application.
To make potential young customers feel special, financial institutions have ramped up their student card products. The perks include extra rewards points for every dollar spent at restaurants and on books and music. Bank of America promotes its Student Platinum Plus Visa, Citigroup offers the Forward and the Dividend Platinum Select Visa, and Discover has its Student More and Student Open Road cards.
The latest to land in my college kid's mail was the Capital One Quicksilver credit card. It's aimed at 18- to 34-year-olds, according to the promotional materials. Among the selling points: generous cash-back offers on purchases, no expiration date for cashing in points for rewards, and a $100 bonus if you spend at least $500 in the first three months. In fact, most student credit cards offer low or no annual fees, generous cash-back offers and other perks. Some even come with a benefit I couldn't believe — a free pass the first time you're late on a payment. After that, look out.
While obtaining a credit card may be on your student's to-do list before moving into the dorm in a month or so, I would tread carefully. Yes, having a credit card to be used for emergencies can be a good thing. But if your son or daughter hasn't handled cold hard cash or a debit card responsibly, there's no sense applying for the plastic now.
Keep in mind that the Credit Card Reform Act that became law several years ago mandates that applicants under 21 be able to pay their own credit card bill — meaning they must have proof of income or savings — or have you co-sign on the account.
But before you agree to co-sign, understand that your credit score can be damaged if your student doesn't pay the bill or compiles a string of late payments. So talk about the consequences of missed payments, or of making just the minimum payment.
With all the cards being pushed at students, I'd recommend finding one that doesn't require the holder to pay for the privilege of carrying the plastic. That means no annual fees. I'd also look at charges for cash advances and late payment fees, as well as the interest rates charged for carrying a balance. But honestly, the card should be paid in full each month.
Keep the credit limit low — say, $800 to $1,000, or enough to cover a plane ticket home or a set of tires. And make sure, as the parent, that you can monitor the usage electronically.
Several student cards reward responsible use of credit. With the Citi Forward card, for example, paying on time and staying below the credit limit three months in a row will result in a 0.25 percentage-point drop in your interest rate. Overall, you can reduce your rate as much as 2 percentage points. Plus you receive 100 bonus points each month for paying on time and staying under the credit limit.
Websites such as LowCards.com, CompareCards.com and CreditCards.com provide comparisons on the best credit cards for college students and young adults.
And one more piece of advice to new card holders, from Bill Hardekopf, editor of LowCards.com: Never use the plastic to pay for a pizza or movie tickets or anything else that will be consumed before you get the monthly bill.