Why do college students need to be building credit? They don't!

credit cardsThe credit card bill that President Obama signed earlier this year will result in sweeping changes in the way that college students interact with credit card companies. Among these changes:
  • Starting in 2010, the companies will be barred from offering free Frisbees, pizza etc. to college students in exchange for filling out applications -- but only when the offer is made on or near a college campus or at a college event.
  • Anyone under the age of 21 will need either proof of income or a parent or guardian to co-sign

    The second one is critically important because it means that parents will have to assume responsibility for their undergrads' debts in order for them to have credit cards -- and credit cards are one of the easiest ways for young people to build up a credit history.

    Here's the bottom line: There is very, very little good that will come of co-signing on credit cards for your kids. And what about that need to build credit in college?

    For my money, a high FICO score is one of the most overrated products in America. The only way that a good FICO score will really help you build wealth is its ability to help you buy a house. And since most kids aren't going to buy their first house immediately upon graduation, they'll have plenty of time to build up a good credit record after graduation -- when they won't need a co-signer and hopefully have their own way to gasp earn money to make the payments.

    Believe it or not, there's actually a downside to having a good credit score when you graduate from college: It enables people to borrow money to buy stupid stuff that they don't need. I've seen more than a few recent college graduates land their first jobs and, with thousands of dollars in new monthly income, take out $20k and $30k loans to buy brand new cars. Without good credit, they'd have been stuck driving their beaters -- and they'd be a lot better off in the long run.

    Most recent college graduates with good credit will either not use that credit or will use it to buy stupid stuff. Do your kids a favor: Don't co-sign on a credit card and don't worry too much about their credit. They can buy a cheap car with cash when they graduate and get a credit card to start building a FICO score. After accumulating enough cash for a good down payment, their credit will be more than good enough to buy a house.
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