New College Students Face New Credit Rules

It’s time for this year’s high school graduates to leave for college, and talking to them about making and living within budgets, credit cards and the dangers of debt should be part of the farewell speech.

Unlike a year ago, there’s something new in the mix this fall that is intended to keep young people away from credit cards, says Bill Hardekopf, CEO of and author of “The Credit Card Guidebook.”

On Feb. 22, the Federal CARD Act began limiting credit options for people under 21. This new regulation protects students from aggressive credit card marketing on campus but also restricts credit availability for students.

They may have their own cards only if they can show they are financially able to make payments or get a parent to co-sign the account agreement. For parents, co-signing should be an option only if the student can use a credit card responsibly.

The act’s strict application requirements will reduce the number of college students with credit cards, but the new rules will deter them from building up huge consumer debt.

The CARD Act also prevents responsible students from building good credit scores. A good credit score may not matter in college, but it will be important after graduation to lenders, employers and apartment managers who use credit scores to make judgments about applicants.

If you co-sign on your student’s credit card account, you’ll receive a monthly statement, and credit limits can’t be increased without your approval.

You should opt-out of “over-the-limit coverage” and insist charges that would put the account over the limit not be accepted. Sign up for online account alerts, which will allow you to receive texts or e-mails when a payment is due or if there is irregular activity on the account.

“Students can also get credit cards if they have jobs and can show they can make payments,” Hardekopf said. “Credit card issuers give very little guidance in their terms and conditions about minimum income requirements or how they verify income.

“Definitions of income also vary by issuer. Some include stipends, grants and scholarships as income.”

Debit cards are tied to checking accounts. Opt out of overdraft coverage to avoid overdraft fees. Online account alerts can notify you when the account falls below a specified balance. Debit cards do not help build credit scores, and there may not be a sufficient balance during an emergency.

Prepaid cards can be purchased anywhere, even in grocery stores. However, they also have fees, so read the fine print before buying.

A secured card has more fees, and interest rates are high, so pay off this type of card each month. Secured cards are relatively easy for anyone to get because they are secured by prepaid deposits. Make sure card activity is reported to credit agencies.

For more on how the Federal CARD Act effects fees, click here.

Source: Tulsa World

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