Credit Cards for College Students

Now that your child is legally an adult and is college-bound, he or she might be eager to get their first credit card. Although credit cards have long been a hallmark of financial independence for young people, today, students under 21 face greater credit card barriers than previous generations.

Unlike in past decades where college students could easily apply for a credit card on campus — and get rewarded with a t-shirt giveaway or other schwag for submitting an application — Title III of the Credit CARD Act of 2009 changed the landscape of credit cards for college students.

How Credit Cards Changed for Gen Z

The Credit CARD Act prohibits credit card issuers and creditors from extending credit to anyone under age 21, unless specific requirements are met. Additionally, marketing credit cards on or near campus, or at a campus-sponsored event by luring students with free schwag is expressly prohibited.

But the latest study by Sallie Mae found that there’s still a legitimate need for college credit card use. According to the national study, How America Pays for College, in nine percent of families, students used a credit card to borrow funds for their college education.

With credit cards being used as a short-term means to pay for rising college costs, you might find yourself uncertain about how to navigate this financial milestone with your student. Here’s what you should know.

Benefits of Using Credit Cards

The Sallie Mae study found that the average amount student credit cardholders borrowed for college expenses was $1,564. Aside from the added purchasing power that a credit card affords, there are a number of advantages that credit cards offer which help set your child up for success.

• Building credit. In order to have access to credit later in life your student can use credit cards to build their credit history early-on by demonstrating on-time payments and developing a strong credit score in the process.
• Learning financial responsibility. Using a credit card teaches your child financial accountability and how to be more conscious about their spending habits.
• Fraud protection. When fraudulent activity occurs on a lost or stolen credit card, the cardholder’s liability doesn’t exceed $50 of unauthorized charges. In contrast, lost or stolen cash has zero protections, and fraudulent activity on a debit card risks students potentially being without access to their cash as fraud claims are investigated.
• Rewards. Some credit cards offer rewards, such as cash back based on your purchases. With a rewards credit card, you can earn as much as 2% overall and 5% in specific categories.

Although there are clear benefits to having your college student use a credit card during their higher education journey, this piece of plastic is a double-edged sword.  

Risks of Using Credit Cards

The disadvantages of credit card use aren’t exclusive to young people under 21. However, with little to no experience using credit, the risks of credit card misuse by college students are significant.

• Going into debt. When using a cashless form of payment, it’s easy to lose track of how much money you’ve spent. Using a credit card feels the same, whether you are spending $5 or $500. Whether the charges are for college expenses or a fun weekend out, novice credit card users can easily end up borrowing more than they can afford to repay each month.
• Interest charges. If your child doesn’t repay each statement balance in full, interest will accrue. This can compound their debt if they’ve already fallen behind on making full payments within the grace period.
• Ruining credit. Continued credit card mismanagement has lasting consequences on their credit history and credit score. Without responsible use, students might develop such an unsavory credit portfolio that they come into credit challenges in other areas, like getting approved for renting an apartment or financing a car.

Using credit cards for college students under 21 is a fine line. If your child feels confident about their ability to carry a credit card responsibly, there are a few options to consider.

How to Get Credit Cards for College Students

Although the Credit CARD Act prevents credit card issuers from granting a line of creditto just anyone under 21, there are a few exceptions and alternatives available to college students. Here are some ways college students can get access to a credit card.

Your child has independent income: College students who are under 21, but have paperwork demonstrating they have an independent source of income sufficient to repay the debt on the credit card might be eligible for a credit card.

You agree to be a cosigner: Any applicant under age 21 who doesn’t have independent income can get a credit card by enlisting a cosigner who is age 21 or older, such as a parent. But, keep in mind that cosigners are on the hook for unpaid credit card debt if the student is unable to pay.

The student becomes an authorized user: One method is to add them as an authorized user under your own credit card account. In this situation, you’ll still be liable for any purchases they incur, but it’s an intermediate step if you’re unwilling to cosign for their own credit card account.

Your child obtains a secured credit card: A secured credit card is like training wheels for a traditional credit card. Students put down a small deposit onto the card that acts as their line of credit. This approach helps them build their creditworthiness in preparation for a traditional card.

Regardless of which option you and your child choose, nurturing healthy credit habits is essential for young people in college.