If you're a young college student, you may have noticed that it isn't easy to get approved for a credit card—don't take it personally. It's because the Credit CARD Act made it much harder for credit card companies to issue you a card before you turn 21.
This isn't a case of "the man" trying to stop you from ordering Chinese takeout online, though. On the contrary, this law actually provides huge consumer protection benefits for everyone, including students—and it still allows you to get a card, under certain conditions.
How The Law Impacts You
The Credit CARD Act was put in place to prevent credit card companies from taking advantage of customers. In line with this, this legislation removed some easy (too easy, really) ways to grant young consumers a credit line they may not be prepared to handle.
For instance, companies can't mail offers to consumers who are under 21 years old and haven't requested any information. They also can't woo students with T-shirts, free pizza, and other gifts at university-sponsored events. These provisions help protect you from getting into too much credit card debt, which is a good idea. But they don't outlaw you from getting a credit card—and that can actually be a good idea, too.
Benefits Of Credit
Many individuals struggle with credit card debt, whether they're young or old. The statistics vary, but the average credit card debt for individuals who usually carry a balance is $7,743. Keeping college students away from such debt makes sense; however, it also keeps students away from credit's benefits.
Using credit cards responsibly can help you build good credit, which you'll need if you want to lease a car, buy a house, or even get a job post-graduation. Many students rely on debit cards instead of credit cards. And while these are great for creating good money habits, they won't help improve your credit score.
In addition, some students may simply need access to credit to cover small costs before payday or help bridge a tuition gap. This is where you can run into problems, since buying anything with a credit card is really the same as taking out a high-priced loan. To avoid this, charge only what you absolutely need to and pay your balance in full every billing cycle—or at least pay more than the minimum so you manage the amount of debt you accrue.
Getting A Credit Card
Some companies offer credit cards specifically for students. Because students typically don't have much credit history or experience paying monthly balances, these cards tend to come with low spending limits and high interest rates.
The terms for these cards generally aren't great, but they're necessary to protect credit card companies for issuing lines of credit to "risky" consumers. Even so, student cards at least give you access to credit and the opportunity to get into good repayment habits now, which can help you get a card with better terms once you're older.
Credit cards have their own terms and conditions, so read the fine print before you apply. Look for a card that has no annual fee and a low APR (annual percentage rate). Some cards even offer a 0% introductory APR. For these, you won't have to pay interest on your purchases until after a certain amount of time passes. Just be aware that your card's interest rate will shoot up after that introductory period ends.
Other Credit Options
Eligibility for credit varies by lender; however, due to the Credit CARD act, you must prove you have the ability to repay your debt to qualify. If you can't prove that you can repay your debt, you'll need a co-signer. If you're a parent, this means extra responsibility. Your student's co-signed account will be part of your credit history, which means that any late payments or skipped payments will become part of your credit report and affect your credit score.
Instead of doing this, you may want to just add your kids to your credit card accounts. This will give the child a card to use, but it won't help them improve their credit score. Another option is to help the child obtain a secured credit card—a card whose limit equals a cash deposit used as collateral. This type of card will help your student build credit without putting your own credit on the line.