It’s almost that time of year again – the air gets cooler, the nights get longer and the kids are once again getting ready to hit the books. If you’re the parent of a student who is about to start college or university, you’re probably feeling mixed emotions: you’re thrilled that they’re taking the next big step in their lives but you’ve got some concerns. One of them may be how your son or daughter will manage financially. This is especially important if they will be living away from home for the first time.
As a parent, you can help steer your adult child towards making the right decisions. When having the money talk before they leave for college or university, include some credit card education. First off, it’s most important he or she knows that a credit card doesn’t equal free money. If your child doesn’t pay off their balance in full each billing cycle, chances are they will be hit with steep interest charges. Second, it’s essential they develop proper credit habits to establish a good credit history from the get-go. Finally, you want to ensure they have the right card for their needs. A travel rewards card with a steep annual fee, for example, may not fit a student’s lifestyle – especially if they spend all their time on campus and only travel with you.
Remember, your child has to be the age of majority to be a primary cardholder in any province or territory in Canada.
Related read: Choosing the right credit card
Building credit history
Not everyone knows what constitutes a good credit score or why we should have one in the first place, but in order to make larger purchases – such as a home or a car – in the future, it’s important to get started on building your credit history as soon as possible. There are a number of cards geared towards this activity but not all of them will be appropriate for a student. One option that is suitable for students is going with a secured credit card – where you or your child puts a deposit down that equates to the credit limit.
So what’s a secured credit card? How is it different from an unsecured card?
For young adults who have no credit history, secured cards are a way for the credit bureau to get to know them without taking a huge risk. The deposit is held as security. In addition, monthly interest rates may be lower than in unsecured cards, usually ranging from 14.9% to 19.8%.
Only once your child has built up enough credit history will the credit card company consider issuing them an unsecured card. At that time, the security deposit would be released back to the cardholder. With an unsecured card, the company trusts your child has the means to repay their debt.
There’s also another category: prepaid credit cards. These work much the same way as a secured card when it comes to the deposit. However, it’s much like a reloadable Tim Hortons card – it deducts from the balance as your child uses it and it won’t help him or her build a credit history. This card is more for convenience than anything else.
Student credit cards
The difference between student credit cards and other beginner cards is that issuers may skip the “no credit, no card” rule* and provide young adults an unsecured card – as long as they prove they are in school. Usually, credit limits start very low and take a while to increase. Your child will also be charged interest rates in line with the average for cards aimed at those with established credit history. That’s why it’s important for him or her to pay off their balance in full every single month.
Here are four good cards aimed specifically at students that have no annual fee:
- The Scotiabank SCENE Visa card offers points in conjunction with the SCENE membership program that can be redeemed at Cineplex Theatres, Sport Chek stores and any Cara-owned restaurant (Swiss Chalet and Harvey’s, as well as Milestones, Montanas and several other chains)
- The Scotiabank L’earn Visa card can earn students up to 1% moneyback. Cardholders also receive a 20% discount at Avis Car Rental
- The BMO SPC AIR MILES MasterCard offers one AIR MILES reward mile for every $20 put on the card and gives users 10% to 15% SPC (Student Price Card) discounts at hundreds of different stores
- The BMO SPC CashBack MasterCard offers the same SPC discount but instead of AIR MILES, offers 1% cashback on all card purchases without any restrictions.
*Note that some of these cards do list good credit score as a requirement, so it’s always best to check with the issuer before signing up.
Authorizing your child on your credit card
If you feel your child isn’t quite ready for the responsibility that comes with having their own card or they are under the age of majority, another option is authorizing him or her on your credit card. This allows you to keep watch on their purchasing behaviour and monitor any unusual activity. The credit limit is shared with the primary cardholder. However, this won’t help him or her build their credit history nor learn as many skills that come with financial independence.
Help your new post-secondary student take on solid credit habits that will stay with them throughout their lives; teach them good credit practices and encourage them to do their homework and shop around before signing up for any new credit cards. Good luck!