Students and Credit Cards: The Credit CARD Act

This article is part of the Students and Credit Cards series.

The Credit CARD Act of 2009 went into effect in 2010, and it brought major changes for college students who wish to obtain credit.

The idea behind the law was to protect students form excess debts and abuses by credit card lenders. It did more than that, though; it made it much harder for students to get approved for credit at all.

Among the credit CARD Act’s provisions:

  • Students under 21 must submit proof of income in order to get credit cards or have an adult cosign on their credit application.
  • Credit card companies cannot advertise on college campuses without permission from the college.
  • Offers of credit may not be sent to anyone under 21 without consent.
  • Creditors may no longer offer free gifts to entice students to complete a credit application.

The net effect of the law is to prevent those under 21 from getting credit; creditors are blocked from marketing to this demographic directly, and the hassle of extending credit to them has made creditors approve cards to students much more rarely.

Even with a cosigner, credit is not guaranteed. Creditors prefer not to have co-signers if it can be avoided, and under the new law, they cannot raise credit limits without the consent of the cosigning adult.

While avoiding debts is great when one is just starting out, avoiding credit puts the consumer at a disadvantage. All of the important decisions in a new consumer’s life are affected by his or her credit rating. Credit can affect one’s access to housing (whether renting or buying), employment, getting an automobile, insurance, utility services, and more. By preventing young adults from establishing a credit rating until they are 21, the Credit CARD act delays an essential part of adulthood, leaving students vulnerable to higher rates or outright rejection when they are trying to get established post-college.

The law also neglects financial literacy; without learning more about how to establish and use credit wisely, the 21-year old student is likely to make mistakes that will mar the credit record. Because the length of one’s credit history is an important factor in one’s credit score, and negative items affect one’s score less with each passing month, starting one’s credit history at 18 rather than 21 years of age is a much better move in the long term.