As students head back to college, they and their parents may wonder how they can be sure that they will have the money that he or she will need for school and food, and extra money for emergencies. Prepaid credit cards are a great way for parents to provide the money that the student will need.
Prepaid Credit Cards Are Really Debit Cards
The advantage of using prepaid credit cards for teenagers is that they can only spend the amount that you prepay to the card company. This prevents them from running up credit card debt. You can also have money automatically transferred to the card when you get paid.
Anyone can qualify for a prepaid card. Your credit report is not checked because you are not borrowing any money. There are no interest charges either. However, a prepaid card will not establish credit.
During College is the Best Time to Establish Credit
It is easier to get a credit card while you are a college student then if you wait until after you get out of college. This is because several credit card companies offer college student credit cards because the student’s parents will usually bail them out if the student cannot pay the bill. The student cards will start with a low credit line of up to $500.
The first step for establishing credit is to have a checking account.
Establishing first time credit will be very difficult if you have not had a checking account for at least six months. The credit card companies want some way to measure whether you can handle money. If you have ever had a parent co-sign on a loan, that also helps establish credit.
The second step is to apply for one credit card.
Do not apply for multiple credit cards at one time. This can hurt your credit because each request shows up on your credit report. If the second and third company see that you have already requested credit, they could turn you down for fear that you will get multiple cards and charge all of them to their maximum limits. Each inquiry to your credit report can remove two to five points from your credit score.
If you are denied, read the “Your Rights When You Receive an Adverse Action Letter” part of our article titled How to Dispute and Repair Your Credit History Report at http://www.thecreditbeacon.com/credit-advice/how-to-dispute-repair-credit-h/
When you do get your first credit card, use it responsibly.
Bonnie Foshee
Exposing the Financial World of Saving and Budgeting
http://www.TheCreditBeacon.com
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