Your child has just finished her first year of college, and you have just finished converting her room into a den. Life as an empty-nester is everything you dreamed it would be, until you receive a phone call from your daughter in tears. She was denied her student loan for the upcoming year because she couldn't make the payments on her new credit card. Not knowing your daughter even had a credit card, you too begin to cry because you realize she will be coming home and you have just lost your new den.

The National Foundation for Credit Counseling (NFCC) reports that half of the college students with credit cards have made at least one late payment, and the same number has bounced a check. You don't need a Finance degree to understand that too many late payments and high credit card balances at graduation equals trouble. But the bad credit habits developed during college can result in more than being hounded by collectors during finals week, or jeopardizing future large purchases, such as a car or house. Bad credit can lead to high interest rates on student loans and even outright denial of a student loan application.

With the growing disparity between the cost of college and the dollars available to students under federal loan programs, many students and parents are turning to private lending institutions to close this gap. But, unlike qualifying for government loans, which are based on financial need, the private loans require the student, as well as the parent as cosigner, to have good credit. Don't let something as seemingly insignificant as a couple of late payments on a credit card delay or even derail your child's dreams of a college education.

Teaching your kids about proper debt management can be the best high school graduation gift you can give. Long after the cash from Grandma is spent, or the trip to Florida is forgotten, your kids will be reaping the benefits of this lesson. Start by obtaining a credit report on your child. This step should be as important as choosing the right school in the process of preparing for college. Many parents may see this as unnecessary because their child is only 17 or 18 and has never had a loan or credit card. But a credit file can be created on a person without ever having to apply for debt, often through fraud or error. Obtaining a credit report for your teenager while still in high school will enable you to correct any problems before they apply for student loans, and be a valuable tool in teaching them about credit.

Credit reports are easy to obtain and available at low or no cost. There are many companies on the Internet who offer to provide your credit report at no cost or for a small fee, but in order to be sure you are getting exactly what you want and avoid getting wrapped up in "free" offers or various fee based services, it is best to go straight to AnnualCreditReport.com or to one of the major credit reporting agencies. AnnualCreditReport.com provides consumers with a free credit report once every 12 months from each of the three major credit reporting agencies and is regulated by the Fair and Accurate Credit Transactions Act (FACT Act). No gimmicks here, just your credit report. All three of the major credit reporting agencies, Trans Union, Experian, and Equifax, can also provide your credit report online for less than $10.00.

With the credit report in hand, you are ready to provide your child with their first "college course." Following are topics you can use to begin the credit discussion with your college-bound teen.

Budget: Your First College Buddy

Preparing a budget is probably the single most important factor in good debt management. If all planned expenditures, such as rent, food, textbooks, etc., are written down and tracked each month, exceeding the budget becomes a choice instead of a mistake. Help make sure your kids have the information needed to make the right choice. Also, when preparing the budget, credit card payments should not be a separate line item. These payments should be made out of allotted spending money. This reduces the incentive to use the card in the first place.

Minimum Payment Equals Maximum Interest

To help keep a handle on expenses and avoid late payments, a person's credit card balance should never exceed 50% of their monthly disposable income, or the money left over after necessities are paid. This ensures the balance can be paid off completely within a month or two. Several sources indicate average student credit card balances of over $2,000, and when balances get this high the student may only be able to afford the minimum monthly payment, which is always a losing proposition. Keep in mind, minimum payments are set at a level that maximizes the amount of interest credit providers receive from the cardholder, not at a level which will result in rapid payoff. The goal should be to never carry a balance over to the next month, and pay no more interest than necessary.

There's No Such Thing as a Free T-shirt

From the moment a student walks on campus they are inundated with offers by banks and credit card companies to go into debt, and given free gifts, such as T-shirts or store discounts for applying. Typically, the cost of the "free" T-shirt will be a card with a high interest rate, low credit line, and an annual fee. These terms protect the lending institution against excessive losses. Credit providers realize giving your 18-year-old a credit card is a risky proposition, and your 18-year-old should understand the risks as well. If you feel your child must have a credit card, arrange for them to get one through a company you know and trust, with terms you approve of, before they arrive on campus.

Emergencies Rarely Involve Pepperoni

Provide guidelines as to what is and is not an emergency where credit card usage is concerned. For instance, a car broken down on campus is not an emergency. This is another chance for you to tell stories of walking five miles to school in a snowstorm. However, paying a tow truck when the car is broken down a hundred miles from campus probably would qualify. Also, any decision to use credit under the influence of alcohol would not likely meet the criteria. Though it may seem like it at the time, pizza at 2:00 AM would not qualify as an emergency.

Find a Pay Phone

Cell phone deals will be as prevalent to your student on campus as credit card offers, and they can be every bit as dangerous to a person's credit. Cell phones and text messaging are in such heavy use today that the phone often becomes an extension of the person. All that chatter makes it very easy to exceed the calling plan minutes, which can result in huge monthly bills. Cell phone providers are like any other creditor and will report unpaid balances to the credit bureaus. If you feel it important for your son or daughter to have a cell phone, assist them in obtaining a good plan before they leave home. If at all possible, set them up with a "pre-pay" plan.

Punctuality Counts

Whether it be showing up to class, or paying your debts, being on time is a necessary lesson to teach kids. This may seem like common sense, but a few late payments on a credit report that contains only one or two relatively new accounts can produce a very negative profile. If you have had a card for only six months and already are having trouble keeping up, you are likely to be considered a bad risk to any future creditors, including student loan providers whose funds you may need to pay your tuition.

Help If You Need It

Despite your best efforts, credit issues may still arise. Should fraudulent information appear, or if you or your child needs assistance in managing credit problems, there is help available. The NFCC is the nation's oldest and largest nonprofit credit and budget counseling service, and has been an invaluable resource to millions of Americans through their Consumer Credit Counseling Services offices around the country. The Federal Trade Commission is also an excellent source of information to help resolve credit problems, particularly when criminal activities occur, such as fraud and identity theft. The three major credit reporting agencies also offer free credit advice on their websites.

Your first credit discussion with your child should not be the last. Keep an open dialogue, and provide reminders once they get to college. Your gentle diligence on this matter will prove not only to help them stay in school by qualifying for the student loans they need, but will set them on the path to financial stability after graduation. And as extra credit for this course, you get to keep your den.

For more information:

Obtaining Your Credit Report

AnnualCreditReport.com

Phone:               877-322-8228       
Web: www.annualcreditreport.com

Trans Union

Phone:               877-322-8228        (shared number with AnnualCreditReport.com)
Web: www.transunion.com

Equifax

Phone:               800-685-1111       
Web: www.equifax.com

Experian

Phone: 888 EXPERIAN or               (888) 297-3742       
Web: www.experian.com

Sources For Credit Help

National Foundations for Credit Counseling

Phone:               (800) 388-2227       
Web: www.nfcc.org

Federal Trade Commission

Web: www.ftc.gov
(Select "For Consumers" link)