06/12/2012 10:46 am ET Updated Aug 12, 2012

Teach Your College Student to Use Credit Wisely

For Women & Co. by Jonathan Clements, Director of Financial Education, Citi Personal Wealth Management

Students take all kinds of things to college with them, including laptop computers, smart phones, mini-refrigerators and microwaves. But perhaps the most useful item -- and potentially the most financially dangerous -- could be a credit card.

Although a credit card can help students buy what they need, it can also make it easier to overspend and, in the long run, do serious damage to their credit history. College students may not give it much thought, but a good credit history will be important when they graduate and want to take out a car loan or rent an apartment, and can even influence whether they get a job. That's why students need to keep track of their credit card spending and always endeavor to make their card payments on time.

Most major banks have at least one credit card program aimed at students. Some cards come with rewards programs where students earn cash or other benefits. To encourage students to use credit cards responsibly, some card programs reduce the annual percentage rate by one or two percentage points if students stay under their credit limit and pay their bills on time for several months.

Depending on the bank, a co-signer may be required. If you co-sign for your child, keep in mind that you'll also be on the hook for the student's bills, which could affect your own credit history. If you're concerned that your child might go overboard with the credit card, you can get a card with a low credit limit. That way, if he or she hits that limit, the card should be declined at the point of sale.

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