Parents across the country are having the talk with their young adult as he or she heads out the door to college. This year, however, the talk isn’t about sex, drugs and rock and roll. Instead, it’s about whether or not the student should apply for a credit card before the new regulations go into effect in February 2010. The recently passed CARD Act will require a person less than 21 years of age to either document their ability to repay the debt, or have a co-signer before being granted credit.
The new law will also regulate aggressive credit card marketing to college students. In years past, issuers enticed students to apply for cards by making offers of free t-shirts, beach balls, or even chances for an iPod. Some states have already passed laws restricting or regulating credit card marketing on college campuses, and with good reason.
A recent Sallie Mae study revealed that college seniors carried an average credit card debt of $4,100 compared with $2,900 five years ago. College freshmen tripled the amount of debt on their credit cards, going from $373 to $939 over the same date range. Keep in mind that this segment of the population typically has no income and no credit history, but has nonetheless been extended credit.
We live in a credit-dominated society, with most of us dependent upon credit for major purchases. Ideally, while in school the student will build a thick credit file, and graduate with a positive credit report and high credit score, allowing them to then realize some of the financial dreams they’d put on hold until graduation. But providing an 18-year-old with little financial training access to a credit card is not only risky, it could be downright disastrous.
When it comes to building a positive credit record, the student has some options. Credit.org suggests that parents and young adults consider the following when deciding what would be best for their situation:
In addition to lenders, employers and landlords also review credit reports. Therefore, it is important to graduate from college, not only with a sheepskin in hand, but a positive credit file.
This article was adapted with permission from the NFCC. Credit.org is a member of the NFCC.