The CARD Act made it tougher for college students to get credit cards. But some banks - and students - are finding ways around the rules.
When Congress passed the CARD Act in 2009, everyone knew there would be loopholes. (In fact, Money Talks News detailed many of them in The CARD Act: What Congress Forgot to Fix.)
Some of those loopholes involved college students. The CARD Act made it tougher for those under 21 to get a credit card – and it worked. Sort of.
According to the Orlando Sentinel, in 2010, “49 percent of students said they owned a credit card, down from 76 percent of those questioned in 2009.”
But like some students, some credit companies are good at finding ways to bend the rules.
One example? The CARD Act requires students under 21 to prove they have the income to handle a credit card. But here’s the loophole: Some students reported their college loan debt as income and scored a card, The Wall Street Journal reported.
To hear more about what the law changed – and what it didn’t – watch the video below. Then read on for a recap and some debt-managing advice for students…
Getting extra credit
While the CARD Act may have reduced irresponsible credit card use, it’s also made establishing credit more difficult for responsible students – who need a strong credit score just like everybody else. Here are some ways students can still get a credit card:
- Prove your income. Students with steady jobs may make enough to satisfy lenders, whose rules vary.
- Get a co-signer. Anyone over 21 will do, but realize late payments can hurt both of you – and that your co-signer is responsible for your debt if you can’t pay it.
- Secured credit cards. These work like all credit cards should, but they come with a big catch: You have to set aside enough money in an account to pay off the maximum balance. Another drawback: Some have high fees, poor terms, and don’t report your timely payments. If you get one, make sure you sign up for a card that reports your payments to credit reporting agencies – that does help build your credit score. Check out our credit card search to find the best terms.
Making the grade
Once you get that credit, use it right – so it’ll still be available when you really need it. Employers, insurers, landlords, and obviously lenders (for car loans, home mortgages, and everything else) will take a close look at your history and base their rates and fees on what they see. Here’s how to make a good impression:
- Budget well. Keep track of due dates for your class assignments and your bills, and budget money better than your study time. Check 5 Steps to Building a Budget That Works.
- Start saving. Having a few months’ income tucked away for emergencies makes a big difference – it’s much better than having to put the expenses on a credit card. And if nothing goes wrong, great. You’ve got a down payment for an apartment, car, or money to pay down student loans and other debt. Check out 5 Steps to Saving More.
- Pay in full. To avoid interest charges and fees, don’t buy what you can’t afford to pay off each month. If you have to carry a balance, keep it below 30 percent of your credit limit – otherwise, your score will drop.
- Guard your credit. Don’t let anyone cheat off you. Monitor your credit score and be proactive in fighting identity theft. Check out 7 Ways to Prevent Identity Theft and 7 Steps to Recover.
- Know your score and how it breaks down. Get a free copy of your credit score so you can see how far you have to go. Understand the factors that matter most take the most work: A long credit history and steady on-time payments account for half your score. Another factor not yet mentioned is having multiple types of credit: Credit cards are open-ended, while installment loans – student, car, or mortgage loans – are closed. Lenders want to see you can manage both.
Unlike your test scores and grades, your credit score will be around the rest of your life – so take it seriously. Graduating soon? Check out 5 Resume Mistakes Grads Should Avoid.