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Impact of the Credit CARD Act

Heading back to school? Find out the impact of the Credit CARD Act on college students and the marketers and credit card companies who do business with them. Could this mean no more late-night pizza runs and spring break trips to South Padre Island? Get the scoop.

The Credit CARD Act (Credit Card Accountability, Responsibility and Disclosure Act of 2009) gives parents and guardians more responsibility for their children’s credit cards unless the young applicants can demonstrate the income to qualify.
Here’s the impact of the Credit CARD Act on college students:
  • People under 21 must have a parent or guardian co-sign for credit cards, unless they can show proof of income or a means of repaying debt, as consumers over 21 must do. The co-signer must also consent to a bigger credit line, instead of an automatic increase.
  • Credit card issuers will no longer be able to market pre-screened offers to anyone under 21.
  • Colleges, universities and alumni associations will be required to disclose credit card “affinity agreements,” where they share student and alumni contact details in return for a revenue percentage when applicants sign up.
  • Credit card companies will be prohibited from giving students goodies like T-shirts or pizza in exchange for filling out a credit card application.
  • Minors will still be allowed as authorized users on their parents' credit cards.
Why do college kids need credit cards, anyway?
The purpose of the Credit CARD Act was to prevent students from graduating with heavy debt loads. But establishing credit is an arguably important step toward financial independence for young people, who will need a good credit record to lease an apartment, land a car loan, qualify for a good rate on car insurance or maybe even get a job.

Fortunately, alternatives to credit cards exist:

Secured credit cards
Consumers have traditionally used secured credit cards to begin establishing a credit history. Card issuers ask for a deposit--$500, for example—which becomes the card holder’s credit limit. Otherwise, it’s much like a credit card, with monthly statement and cardholder activity reported to the credit bureaus.

Debit cards
Use a debit card to pay at a cash register and the money’s instantly debited from your bank account, rather than accumulating a debt you have to pay back. Disadvantages: you have to have the money up front, and it won’t help you establish a credit record. Advantage: nothing to pay back.

Pre-paid cards
Pre-paid cards fall somewhere in between the two, where you deposit cash in an account that you’ll spend, like a checking account. Some pre-paid cards claim to help you establish a credit history.

If you or one of your children is off to school, these alternatives to credit will allow them to learn a sense of financial responsibility without getting into large amounts of debt. Compare cards and rates to find the one that’s best for your situation.
Now that you know more about the impact of the Credit CARD Act on college students, get your Credit Report and Score.
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