Should Under-21's Apply for a Credit Card?

New Card Laws Make It Harder for 18-21 Year Olds to Get Approval

May 31, 2009 Asa Ghaffar

New card laws make it far harder for under-21's to apply for a credit card. It is still possible to get a card, but application process is far more rigorous.

The Credit Card Accountability, Responsibility and Disclosure Act became U.S. law on 22 May 2009. Under-21's will face tighter controls should they wish to apply for a credit card. These new card laws are specifically designed to prevent young people acquiring credit card debt before they are old and wise enough to make more informed decisions.

Under-21's Who Apply for a Credit Card Face Fresh Restrictions

All under-21's must meet one of the following criteria before they apply for a credit card:

• They should have independent financial means to repay any outstanding credit card debt.
• A parent, guardian or individual who is over-21 must agree to be a co-signer. This means that the co-signer is jointly liable for any debt that has been accrued.

Other Changes to Card Law

• It is no longer permissible for a card provider to offer gifts to students in order to entice them to apply for a credit card.
• Pre-screened card offers can no longer be sent to under-21's unless that person has consented to receiving them in advance.
• Credit limits cannot be automatically increased based on a FICO score alone. A limit can only be changed when the co-signer provides written permission.

Is it Sensible to Co-sign for a Credit Card?

Research by Sallie Mae showed that 84% of college students currently have a card; the average outstanding balance is $3,173. The amount owed will vary considerably between students and some will owe a lot more than the average. The co-signer is jointly liable for any credit card debt and missed or late payments will affect personal FICO scores. It could also get the student into bad spending habits from a relatively early age.

Apply for a Credit Card to Boost a FICO Score

A number of under-21's apply for a credit card in order to improve their FICO score. Whilst a series of regular payments will achieve this objective, a more likely outcome is credit card debt. It is easy to develop a credit score in a few years, but it can take as long as a decade to undo the damage of missed and late payments.

The card laws have been reformed to prevent under-21's from accruing credit card debt before they have sufficient life experience. Those who apply for a credit card will now need a co-signer. Whilst punctual card payments can improve FICO scores, there is ample time to achieve this objective later on.

Readers that found this article useful may also be interested in identifying the best credit card deal, discovering how effective credit card debt settlement is or finding out how to avoid identity theft.

Sources

Singletary, Michelle. (31 May 2009). "Parents now have the power to keep young adults out of credit card debt." The Boston Globe.

(April 2009). "How Undergraduate Students Use Credit Cards." Sallie Mae.

Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional.

The copyright of the article Should Under-21's Apply for a Credit Card? in Personal Budgeting/Finance is owned by Asa Ghaffar. Permission to republish Should Under-21's Apply for a Credit Card? in print or online must be granted by the author in writing.

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