As many young Americans head off to college, some will be hoping to take a credit card with them for the first time. At the same time, many students and their parents alike are unaware of the laws that govern student credit cards and the options that young adults have when choosing a card.
How the CARD Act Affects Students and Other Young Adults
The CARD Act of 2009 is the most sweeping regulation of the credit card industry in the last generation. Some of the many perceived abuses that this law targeted were practices towards college students and other young adults that were seen as predatory. For example, it was not uncommon for credit card issuers to market their products directly to college students on campus and at athletic events. It was also popular for banks to offer hats, t-shirts and other gifts to students who applied for a credit card in person. Finally, credit card issuers were regularly granting students large lines of credit, even when they had no income or other means to pay back a loan.
As a result, many college students found themselves quickly in debt shortly after arriving on campus, while others found that themselves unable to pay off their credit card balances for years after graduation. The CARD Act prohibited all of these controversial marketing practices, and credit card applicants under the age of 21 must show a means to repay their loan before it can be approved.
Credit Card Choices for Students
Due to the restrictions of the CARD Act, students who don't have a part-time job will be unable to be approved for a new credit card account as the primary cardholder. This leaves several other options for non-working students who need the security and convenience that credit cards offer over other forms of payment. First, students can be additional authorized cardholders under their parent's credit card account or someone else's. However, the primary cardholder is always responsible for the charges made by all authorized cardholders.
Another option is for students to apply for a credit card with a co-signer, however, not all credit card issuers still allow co-signers. With this type of joint account, both applicants are individually responsible for repayment of any charges, even if the one party does not pay.
Credit Cards for Students
Some credit card issuers offer cards that are specifically marketed to students. These cards have less competitive rates and terms than other credit cards, but students can still be approved with their with limited credit histories. These cards may still offer limit amount of rewards, a promotional financing offer, and even some incentives when students pay their bills on time or get good grades. These student credit cards offer all the benefits of other credit cards while giving students the opportunity to build their credit history before graduation.
Ideally, parents will work with students to guide them as they learn about responsible credit use. And when students are able to use credit cards without incurring debt, they will leave college with good financial habits and a strong credit history.