Credit card companies use to give freebies to get college students to sign up. Now students' access to credit cards is limited.
The Credit CARD Act of 2009 dictates that no one under 21 can get a credit card without either a co-signer or proof that they have earned enough income to cover regular payments. For many students, a credit card is no longer an option.
Some students do have alternatives, such as getting a secured credit card or becoming an authorized user on their parent's card to pay for daily needs. Credit counselors say building a credit history and staying out of debt should be top priorities.
The easiest solution is to get a parent to co-sign. That gives the student both access to credit and the benefits of establishing a credit history. Yet, some parents may not want that responsibility and risk; if a student defaults on a payment, it goes on the parent's credit report as well.
Adding to co-signers' responsibilities, the new law requires that they must remain connected to the credit card after the cardholder turns 21, unless the cardholder can prove they earn enough income to make payments. Thus, if a student doesn't get a job after graduation, the co-signer is still responsible for the credit-card payments.
Also, if the card is in the student's name rather than the co-signer, the co-signer may not know in a timely manner if payments are late or when the card has been extended beyond its limit. Problems can take longer to surface with the student as the primary card-holder than if the student is authorized to use a parent's card.
Like having a co-signer, becoming an authorized user on a parent's card puts the parent at risk for damaged credit if the student misuses the card. The advantage over a co-signed card is that parents can quickly see the credit card activity.
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