No More Extra Credit on Campus

Editor’s Note: The video above is ours, but the post below comes from partner site LowCards.com.

The Credit CARD Act that took effect on February 22nd had as one of its major provisions restriction on marketing credit cards to young adults under 21.

“Right now, it is easier for a college student to get a credit card than to get up for class. College students use credit cards to pay for everything, just like their parents. Once this new law takes effect, many college students will have difficulty getting a credit card,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

Beginning February 22, issuers are not able to offer free merchandise to lure students to sign up for a credit card on college campuses, at college sponsored events (like sporting events) or within 1,000 feet of the campus. In addition, the CARD Act bans credit cards to people under 21 unless there is an adult co-signer or the young adult can show proof they have the income to pay the debt.

“The regulations leave ‘sufficient income’ open to interpretation. Some issuers will just want to know that your monthly income is more than your minimum payment due. However, students need to assess their own situation. If you are struggling to pay for your own food, housing, transportation and education bills, you can’t afford to carry a balance on a credit card,” says Hardekopf.

Credit lines will also start out low. If there is no co-signer, credit lines will be $500 or 20 percent of the student’s annual income. If the student has more than one card, the credit line from all credit cards will be up to 30 percent of the annual income.

College is a good time for students to learn how to correctly use credit cards and build up their credit score. However, many students are unprepared for the responsibility.

A 2009 Sallie Mae study showed that college students used credit cards more than ever before. 84% of college students have at least one credit card, up from 76% in 2004. The average amount of debt carried by college cardholders is $3,173 which represents a 46% increase over the 2004 figure of $2,169. The average student has 4.6 credit cards.

Only 17% of college students pay off their entire balance each month and 1% had parents or other family members paying the whole balance. The remaining 82% carried balances and paid finance charges each month.

Parents must educate their students about using a credit card. One-third of students rarely or never discussed credit card use with parents, and nearly all undergraduates would like more information on financial management topics.

“Parents can make the co-signing for a credit card a very teachable moment. Tell your student how to deal with credit cards and the pitfalls that exist. Explain how to read the monthly bill and how important it is to pay the balance in full at the end of each month. Give them real-life examples of the credit card mistakes you have made so they can avoid making the same mistakes,” says Hardekopf.

Options for Credit for College Students

1. Co-sign

The student can apply for a card with an adult co-signer. If the student is unable to pay off the account, the credit card issuer will demand that you pay off that debt in full.

The loan will be reported on the student’s credit report. If it is paid on time and more than the minimum, it will help increase credit scores. However, adding your name to someone else’s debt is a very serious financial step because this mixes your credit record to your child’s. If either the student or parent defaults, mistakes become community property and everyone suffers because the co-signer has committed to make good on this account. Delinquencies will show up on both credit reports. The only way to get your name off of the loan is to pay off the loan.

As a cosigner, your liability for the loan may keep you from getting other credit because creditors will consider the cosigned loan as one of your obligations.

2. Authorized user

This is almost like an apprenticeship to teach your student how to use a credit card. You give your student authorized permission to use your credit card by adding him/her to the account. The student can receive and use a card with his/her name on it without being legally responsible for repaying the credit card balance.

The account is considered the same for credit scoring as if it were owned by the authorized user. If you have a good credit score, your student will benefit from that. However, if you have a couple of late payments or get into trouble, this will also affect the authorized user. Authorized users can be removed with a letter or phone call to your issuer.

3. Open a Checking Account with a Debit Card

A checking account with a debit card is a good first step toward learning how to manage credit. While debit cards have their own fees and downfalls, college students can get into far less trouble paying a $30 overdraft fee than running up a significant credit card balance and it does not pull down your credit score.

4. Prepaid cards

Opening a prepaid card may be the easiest option for students, but their fees are higher. Make sure the card reports payment activity to credit bureaus (many secured and prepaid cards do not). AccountNow prepaid Visa reports to all three agencies. The processing fee is $19.95, the monthly fee is $4.95 and there is a $0.50 transaction fee per transaction.

“Prohibiting promotional offers and marketing on campus will be help reduce impulse applications. If your student is qualified to apply for a credit card, help them research credit card offers to find the best card with the lowest rate. Use the Terms and Conditions to compare cards and to explain the fine print,” says Hardekopf.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
9 Things You Should Never Pay For With a Debit Card
9 Things You Should Never Pay For With a Debit Card

Use your debit card for one of these expenses, and you could risk your bank account balance, your credit score or even identity fraud.

Retirees Can Dodge Taxes on These 9 Types of Income
Retirees Can Dodge Taxes on These 9 Types of Income

There are lots of things Uncle Sam can’t touch — so long as you play by the rules.

7 Surprising Ways Retirees Waste Their Savings
7 Surprising Ways Retirees Waste Their Savings

You can make your retirement money last a lot longer by avoiding these costly mistakes

15 Purchases That Make Life Easier As You Age
15 Purchases That Make Life Easier As You Age

There are many products that can make getting older — or any time of life — a little easier.

11 Home Upgrades With the Best Payback in 2020
11 Home Upgrades With the Best Payback in 2020

The home remodeling projects that deliver the best bang for the buck tend to have one thing in common.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

11 Things Retirees Should Always Buy at Costco
11 Things Retirees Should Always Buy at Costco

This leader in bulk shopping is a great place to find discounts in the fixed-income years.

Over 50? The CDC Says You Need These 4 Vaccines
Over 50? The CDC Says You Need These 4 Vaccines

Fall is the time to schedule vaccines that can keep you healthy — and even save your life.

11 Senior Discounts for Anyone Age 55 or Older
11 Senior Discounts for Anyone Age 55 or Older

There is no need to wait until you’re 65 to take advantage of so-called “senior” discounts.

11 Household Items That Go Bad — or Become Dangerous
11 Household Items That Go Bad — or Become Dangerous

When you get the impulse to stockpile these everyday items, pay close attention to their expiration dates.

8 Things You Can Get for Free at Pharmacies
8 Things You Can Get for Free at Pharmacies

In this age of higher-priced drugs and complex health care systems, a trip to the pharmacy can spark worry. Freebies sure do help.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

These Are the 4 Best Medicare Advantage Plans for 2020
These Are the 4 Best Medicare Advantage Plans for 2020

Medicare Advantage customers themselves rate these plans highest.

The 10 Most Commonly Stolen Vehicles in America
The 10 Most Commonly Stolen Vehicles in America

A new model parks atop the list of vehicles that thieves love to pilfer.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

The 15 Worst States for Retirees in 2020
The 15 Worst States for Retirees in 2020

Based on dozens of metrics tied to affordability, quality of life and health care, these are not ideal places to spend retirement.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

10 Reasons Why You Should Actually Retire at 62
10 Reasons Why You Should Actually Retire at 62

If you can, here are several good reasons to retire earlier than we’re told to.

26 States That Do Not Tax Social Security Income
26 States That Do Not Tax Social Security Income

These states won’t tax any of your Social Security income — and in some cases, other types of retirement income.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

5 Keys to Making Your Car Last for 200,000 Miles
5 Keys to Making Your Car Last for 200,000 Miles

Pushing your car to 200,000 miles — and beyond — can save you piles of cash. Here’s how to get there.

5 Things That Make Life More Meaningful for Retirees
5 Things That Make Life More Meaningful for Retirees

Retirees agree: These are the things that give them purpose and fulfillment in their golden years.

14 Things That Are ‘Free’ With Medicare
14 Things That Are ‘Free’ With Medicare

These services could save you money and help prevent costly health problems.

15 Amazon Purchases That We Are Loving Right Now
15 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.