Do students need a credit card in college?

By Scott Gamm/MainStreet.com

Students heading back to college will have plenty of opportunities to sign up for credit cards, but they could find themselves in deep financial trouble if they do so without planning ahead.

Despite laws aimed to protect students by limiting how credit card companies can reach students, per the Credit CARD Act of 2009, students will still be bombarded with credit card offers and may succumb to peer pressure from friends.

Signing up for a credit card, especially at age 18, is a major financial milestone, which can cause tremendous financial stress.

Thanks to the aforementioned laws, anyone under age 21 must have a cosigner on the card unless they can prove sufficient income.

For students, obtaining a credit card at the beginning of college has benefits. "One of the factors that determines your credit score is the length of credit you have," says Kevin Yuann, director of credit cards at NerdWallet. "The longer the history, the better your score will be."

Upon college graduation, the student would have several years' worth of credit history and can hit the ground running, assuming they've used the card responsibly during those years. That's a big assumption.

Some students may not be up to the challenge of having a credit card at age 18. The temptation to spend may be too high and result in significant balances or even worse, default, which would harm their credit for years. The damage from missed payments is much worse than the dings to the score for having a thin credit file. The perk of opening a credit card early to have a longer credit history is only truly beneficial if the card is used responsibly.

The other school of thought is to wait a few years and obtain a credit card during sophomore or junior year of college. "In the meantime, there are ways to ease into a credit card by using a debit card, though debit cards do nothing to build a credit history," Yuann says.

Students should have a debit card regardless, which is linked to a checking account. If checking account fees are too high at the traditional banks, many schools have a credit union that typically offers lower fees.

Another option is to use cash for the first year or two of college.

"For parents, seeing their kids use cash responsibly may indicate to them that they're ready for a credit card and perhaps even being added as an authorized user to the parents' credit card," says financial expert Gail Cunningham with the National Foundation for Credit Counseling.

If parents have a solid credit history, adding their kids to the card as an authorized user is a nifty way for kids to build credit. Keep in mind though, failure to make payments -- even resulting from purchases the child made -- will impact both the primary and authorized user's credit.

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Scott Gamm is the author of More Money, Please: The Financial Secrets You Never Learned in School.