Is a credit card a good graduation gift?

Your high school grad is ready to face the world. Does he need plastic in his wallet?

By May 12, 2014 11:28AM
This post comes from Jason Steele at partner site on MSN MoneyAs spring turns into summer, many students are anticipating graduating and moving on to the next stage of their lives. At this time, parents may be considering giving their children a credit card as a graduation gift, but is this a good idea?

Young man sitting at a table in front of a laptop holding a credit card © Jack Hollingsworth, Blend Images, Getty ImagesOf course, friends and family cannot actually open an account in a student's name -- only a card issuer can do so after the student submits an application and is approved. Nevertheless, parents can make their children authorized users under their own accounts. As the primary account holders, parents are authorizing the student to use the card to make any purchase, and the parents will always be responsible for repayment.

As authorized cardholders, students can use the card to make purchases at their discretion, but they will be unable to report a card as lost or stolen, dispute charges or make any other changes to the account.

There are several good reasons why parents may wish to make their adult children authorized cardholders:

Convenience. Students can easily charge books, meals and other living expenses with a credit card rather than have their parents write and mail checks.

Security. Stolen checks can be used fraudulently and it can be time consuming to resolve. And when cash is stolen, it is gone forever. In contrast, federal laws protect credit card users from unauthorized charges to their account, and card issuers immediately issue a temporary statement credit when a fraudulent charge is reported. Once the claim is documented, the credit becomes permanent.

Safety. Many parents feel that students living away from home for the first time need access to emergency funds. Should their car break down, or other travel plans become disrupted, a credit card can be a means to cover unexpected expenses in a pinch.

Building financial skills. Being an authorized user on a parent's account is like having a credit card with training wheels. Parents can monitor their children's spending in order to make sure that the privilege is not abused. Parents can even have their children reimburse them out of their personal accounts for certain charges, just as if they had to pay the bill. For example, parents might agree to pay for books and academic fees, but have their children reimburse them for entertainment and leisure travel expenses.

Building credit history. Young adults face the challenge of building a credit history from scratch while it is hard to open new accounts in their own name. By making a child an authorized user of their parent's account, students can be on their way toward good credit so long as the parent's account also has a history of on-time payments and carries a low level of debt, relative to the credit limit of the card.

Drawbacks of giving a student a credit card

For all of the benefits of giving a student access to a credit card, there are several potential issues that must be taken into consideration.

Overspending. Parents may fear that their child will treat a credit card as a license to spend "free" money. To address this concern, parents should closely monitor the account online, and let their child know that they will be tracking their spending. Fortunately, many card issuers allow customers to set alerts on their accounts whenever a certain amount is spent.

Costs. The vast majority of credit cards offer free additional cards to authorized users, but not every card does. For instance, the American Express Platinum card charges a $175 annual fee for each additional cardholder.

Hurting credit histories. Just as a strong credit history will help the credit score of an authorized cardholder, parents who are having trouble with their credit can hurt their child's credit score by making him or her an authorized user on an account that has a history of late payments or carries a high balance in relation to the card's credit limit.

If you're thinking of making your child an authorized user on your credit card in order to help them build credit, it's important to make sure that account is in good standing beforehand. You can do that by checking your credit report and making sure its good payment history and low level of debt have been reported accurately. Then, you can get an overall view of your credit by checking your credit scores -- which you can do for free using tools on  This is also an excellent opportunity to introduce your child to their credit, and get them in the habit of checking their credit reports and credit scores regularly.

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May 17, 2014 5:13AM

As long as the student applies for the card themself without a co-signer and pays the bills with their own money, I don't see a problem with them having a credit card.

May 17, 2014 10:56AM
The answer really depends how you raised your children.
May 17, 2014 3:47PM
I'd do a pre-paid credit card until I could tell how responsible the kid would be. If they can show the difference between wanting something and truly needing something, that's an indicator of real responsibility. Credit card companies should not be permitted to 'hunt' these students on campus unless they are 21 years old.
May 17, 2014 5:29PM
Someone will bring politics into this discussion because they lurk in the shadows. But I would give my kid a credit card but right now they have more money than I do.
May 17, 2014 3:23PM
Absolutely NOT! No credit card for graduates. How did this even become a graduation gift?
May 13, 2014 7:35AM
Need? No, but it could come in handy. If you let them have a card, the smart thing is for you to manage it, but include them with everything.
May 17, 2014 6:44PM
I don't personally believe parents should tie themselves financially with their children, not just credit cards, but loans, car insurance, cell phone, even gasoline. When I was 18 I went to HSBC (now first Niagara) and opened a low limit credit card to build a foundation for myself. My limit was $250. Now I'm 26 and my limit is none of your business, my FICO Score is 796, and I'm glad I was responsible and learned how to guide myself based on what my parents taught me. That's what parents should do.
May 18, 2014 4:54PM
Many colleges have cash accounts through which you can buy books, etc. with your college I.D. card as you would a bank debit card.  Credit Union no-swipe-fee debit cards are another way to go.  In each case, the student would learn how to handle spending without the risk of the parent waking up one morning to discover $10,000 of debt from gambling, foolish purchases, etc.
May 18, 2014 12:55AM
A Hallmark "congrats your back on the bottom of the poo pile" card, you bet!
Why wait until your children have reached adulthood before teaching them how to handle money?

Seems like it's a wise lesson to instil throughout childhood. Then after high school, unless there are certain special circumstances, cut the apron strings...

May 17, 2014 10:30AM
Yes,you have to have trust in your children,to be reponsonable. Good day
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