Parents across the country are having the talk with their young adult as he or she heads out the door to college. This year, however, the talk isn’t about sex, drugs and rock and roll. Instead, it’s about whether or not the student should apply for a credit card before the new regulations go into effect in February 2010. The recently passed CARD Act will require a person less than 21 years of age to either document their ability to repay the debt, or have a co-signer before being granted credit.

The new law will also regulate aggressive credit card marketing to college students. In years past, issuers enticed students to apply for cards by making offers of free t-shirts, beach balls, or even chances for an iPod. Some states have already passed laws restricting or regulating credit card marketing on college campuses, and with good reason.

A recent Sallie Mae study revealed that college seniors carried an average credit card debt of $4,100 compared with $2,900 five years ago. College freshmen tripled the amount of debt on their credit cards, going from $373 to $939 over the same date range. Keep in mind that this segment of the population typically has no income and no credit history, but has nonetheless been extended credit.

When it comes to building a positive credit record, the student has some options. Following are some things parents and young adults should consider when deciding what would be best for their situation:

Become an authorized user on the parent’s card. This is a practice known as piggybacking, and is exactly what it sounds like. The student is attached to the parent’s card and has charging privileges, but no legal responsibility for payment since the card is not in his or her name. The activity on the account is reported to the credit bureau in both the parent’s name and the student’s name, thus the young adult builds a credit file of their own. This option allows the parents to monitor the student’s spending, and remove them from the card if things get out of hand.

Get a secured credit card. This type of credit card requires a cash collateral deposit which then becomes your line of credit, thus limiting any abuse. Consumers need to be very careful when applying for this type of card, as some charge high fees which can greatly diminish your spending power. You can also expect a secured card to have an annual fee and a higher interest rate than an unsecured card. Make sure that the issuer reports to the credit bureau. If they do, and if you pay responsibly, a secured card can not only be a safe way to build a credit file, but after a year or so will likely qualify you for an unsecured card.

Obtain a card in the student’s name. Since the clock is ticking on the availability of this option, it definitely merits a conversation between the student and the parent. If the young adult has some financial training and experience with credit, and has demonstrated that he or she can handle it responsibly, then having a card in their own name could be a good way to launch their own credit file. Student credit cards typically have low credit lines, thus somewhat limiting the amount of financial damage that can be done. However, an irregular payment history on even a small debt can damage a credit file, which defeats the purpose of having a card.

In addition to lenders, employers and landlords also review credit reports. Therefore, it is important to graduate from college, not only with a sheepskin in hand, but a positive credit file.

This post was provided by The National Foundation for Credit Counseling (NFCC). Money Management International is a member of the NFCC.

For more about college and credit, check out:

Frugal tips to ease back-to-school shopping expenses
Survey Says: Save more for college
Economy calls for a change in college plans
Earn an “A” in personal finance this semester
New & old ways to pay for an education

Respondents to a new nationwide survey conducted by Money Management International think that parents should save more to help their children afford college. In fact, nearly half (47%) said that parents should be saving more. Echoing this thinking, nearly as many respondents (43%) think that parents should establish and fund a 529 plan. Rounding out the top three, many respondents (41%) think that students should be responsible for shouldering more of the financial burden.

The focus on saving seems to mirror the changes in national financial perceptions and habits. According to a New York Times article in June 2009: “The personal saving rate, which dipped below zero during the housingboom as Americans tapped home equity loans and other easy lines of credit, rose to 6.9 percent in May, the Commerce Department reported. That was its highest point since December 1993.”

Other less popular ideas for funding an education included dipping into regular savings (19%), taking out a personal loan or use credit cards (17%), taking a second job (12%), taking a second mortgage or a home equity loan (8%), borrowing against retirement savings (6%), dipping into retirement savings (5%), and borrowing against insurance policies (4%). (Note: respondents could select more than one option.)

Several respondents made very specific suggestions which are worth noting:

-”Encourage academic excellence early.”
-”Help when possible, but teach children about financial responsibility at an early
age and encourage them to save, too.”
-”Instead of saving for college, use that college money to pay off their mortgage
sooner. Then use what they would be paying for their mortgage and help their
children with college.”
-”My children join military for schooling purposes. I have poor credit and no
savings live paycheck to paycheck.”
-”Teach their kids they are NOT going to get everything handed to them, as I was
taught; I paid for my college, and so did one of my kids that just graduated. All on
their own.”
-”Teach them to be independent at an early age and help them do for themselves.”
-”Think government should pay for schooling cause without workers there will be
no taxes and no one to pay them in the future.”

For more about college and credit, check out:

Economy calls for a change in college plans
Earn an “A” in personal finance this semester
New & old ways to pay for an education
Money management for the first time adult

It’s an exciting and scary time in many young adults’ life – heading to college. There’s so much freedom in being a college student. It’s a four-year adventure! However, sometimes as young adults when we aren’t under the watchful eye of our parents we can get carried away especially when it comes to money and credit.

As a poor college student it’s so easy to charge unnecessary expenses on a credit card. I have a confession to make. As a college student my only purpose for getting a credit card was to go shopping and wear the kind of clothes I desired. I was, however, responsible enough to pay my credit card off. Yet, I could have used that money on something more useful. Don’t fall into the “I’ll charge everything now and pay it back later when I get a full-time job” trap that so many students fall into. Here are some financial tips that were beneficial to me as an undergrad.

Look for student discounts: There are all sorts of deals out there for college students. You just have to take the time to do the research and look for them. Take advantage of student discounts at the movies, museums, theatre, and even some gyms offer a discount for students. The extra savings go a long way.

Use credit card sparingly: Your undergrad years are a good time to establish credit because you’ll need it later when you want to purchase a car, home, rent an apartment, or be considered for employment. It’s also an opportune time to destroy your credit score with frivolous purchases on a credit card that you can’t afford to pay back. Credit should be used as a tool of convenience not an extension of your income. If you purchase a large ticket item on a credit card work out a budget to get the debt paid off as soon as possible and don’t continue to charge expensive items on a credit card without first paying it off.

Don’t take out unnecessary student loans: Student loans have become the norm for most college students. However, only take out enough to pay for educational expenses – not personal expenses. I knew some students taking out extra loans just to live off or use for spending purposes. This is one of the worst financial mistakes you can make. It may seem like free money at first, but you’ll regret it when you land that dream job and all your disposable income is going to pay back loans you didn’t need in the first place.

Save, save, save: Did I mention save? A lot of young adults neglect saving at an early age because they just don’t see the benefit or don’t have the discipline. If you begin saving a little every month you’ll be surprised at how fast that money grows over time. At the end of each semester I got a refund check. Instead of spending it I saved it and by the end of my senior year I had enough money to put a down payment on a car and to help pay for expenses after I graduated.

Open a checking account: I opened my checking account when I was a sophomore in college. It was one of the wisest financial decisions I made. My paychecks went straight to my account and funds were available immediately on payday. I no longer had to go the local supermarket to cash my check and get charged a fee. Checking accounts are fast, easy, convenient, reliable, and a safe way to store your money.

Spend wisely: Don’t spend all your extra money eating out, shopping, or on entertainment. If you live on campus use your meal plan instead of eating out. Try taking the bus sometimes and save money on gas. Or, have a movie night at your apartment/dorm instead of going out and buying a movie ticket and refreshments.

Finally, it’s important to keep track of your expenses – know what’s going out and what’s coming in. The best way to do that is to create a budget. A sound budget is your best friend when it comes to finances.

For more about college and credit, check out:

New & old ways to pay for an education
Money management for the first time adult
Budget decorating tips from the dorm