Long time ago, a credit card can be a nice present for young adults once they turned 18. But that was a history for now a law under Credit Card Act of 2009 restricts companies to give people under 21 a credit card unless they meet several requirements. Young adults are only allowed to have a credit card if they have stable income or have a co-signer. However, some young adults are given secured credit card by their parents in hope they learn how to manage their expense. Now you can wonder, is it wise to give a secured credit card for students?
Before digging up more information, we should know what secured credit card is. Unlike the traditional credit card, the secured one requires its cardholder to pay some amount of money as a security credit deposit. The amount of the deposited money will be the credit limit and it may have a higher interest rate than the unsecured card. Some parents believe secured credit card for students is a way to monitor their child’s expense.
Pros and Cons about Secured Credit Card for Students
Secured credit card for student debate has been discussed for a long time. For those who support giving secured credit card for student, it’s an excellent starter point for young adult to build their credit history. Secured credit card is known for their ability to boost up credit score and even repair the disastrous one. The good credit history will help young adult to establish their life and career in the future.
Moreover, secured credit card for students offers same protection with traditional credit card if it’s lost or stolen even though it has lower threshold for the application. Parents with bad credit score are also allowed to be a consigner for their child secured card. They are given freedom to set the lower balance limit and determine monthly allowance to keep their child expense on track. It’s a powerful tool to create monthly budget. Here’s some advice after giving a secured credit card for students:
- Encourage them to use the card regularly and pay the bills on time. This act will increase a good credit score.
- Never miss any payments or the penalty must be given – and it’s daunting.
- Use the card as an indicator for setting up young adults’ expense budget.
However, you need to consider these several cautions before giving secured credit card for students. Secured credit card tends to be more expensive and it has hidden fees you may not know before. In addition, the interest rate is relatively higher compared to the traditional card. Therefore, irresponsible young adult will only bring harm to this matter. A late payment will be charged and it will hurt parents’ credit score as well.
Regardless parents believe, they should discuss this credit card matters with their child. Secured credit card for students works best with both party hard work and commitment. Don’t forget that parental advisory and financial advices are badly needed for all young adults.