You’re finally finished with high school and college bound this fall. Getting a credit card before you hit the books come September may be on your to-do list for the next months, but be aware that it’s not as simple as signing on the dotted line and getting a card in the mail.
To get a credit card in your name alone you need to be at least 18 years old, but even then most college students won’t qualify. Card companies require you to have your own source of income to qualify at age 18; meaning, they want proof of a full-time job, and that’s often not the case for full-time students.
Financial reform, in the form of the Credit Card Act of 2009, made it much harder for anyone under age 21 to be approved for their own card. This is good news for those who would potentially get into trouble with easy credit and rack up a lot of debt, but it’s bad news for responsible students who want to build their credit while getting an education.
Gone are the days of credit card companies handing out free swag and almost-guaranteed-to-be-approved applications on college campuses. If you’re between ages 18-21 and do not make a full-time income, you’ll need a parent or another adult over age 21 to co-sign on a credit card application with you. If you’re over age 21, the restrictions loosen, but you’ll still need to show proof of income. Luckily, it doesn’t need to be full-time.
Student vs. Secured
Credit cards created specifically for college students are a great way to get your feet wet in the world of credit cards. These cards are generally easier to get approved for and will help you establish a solid credit history for the future.
Student credit cards often have no annual fees, reasonable interest rates and perks like a rewards bonus for maintaining a higher GPA or an increased credit line after five on-time payments.
If you don’t qualify for a card on your own and don’t have (or don’t want) a cosigner on your account, a secured credit card could be the route for you. Secured credit cards work just like “normal” unsecured credit cards, with fees, finance charges and the like, but with one major difference: they require a cash deposit as collateral for the credit line. Generally that deposit is also the limit on your account. Your security deposit is typically held in a savings account or a certificate of deposit until you’ve built enough credit to convert from a secured to an unsecured credit card. If you don’t pay your bill, poof — say goodbye to your deposit.
If you use your secured credit card responsibly, making regular purchases and paying them in full and on time every month, you will build your credit history. Over time you’ll have good enough credit to ‘graduate’ from a secured credit card to an unsecured credit card. This may take an average of 12-18 months.
One other option is to become an authorized user on someone else’s credit card account. You will still receive a card in your name, but the account is ultimately tied to someone else’s credit (usually a parent). If they manage their credit well, it can benefit your credit history. If they don’t, however, it could be bad news for you, too. Like a co-signer, the named account holder is ultimately and legally responsible for any debt, but if their credit takes a hit because they aren’t managing the card well, your credit will take a hit, too.
Think of the Future
No matter what credit card you choose — co-signed, secured or other — it’s important to remember that what you do now can either benefit or damage your future financial life. A good credit history established while you’re a student can pave the way for better terms on loans after graduation, help you stand out as a qualified renter and even impact your car insurance rates. Bad credit history can take years to repair.
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