It’s common wisdom – and it even happens to be true – that the longer your credit history, the better. The age of your revolving accounts, both individually and on average, is a major factor in determining your credit score.
Until recently, it was easy to “get in the game” of credit right out of high school, almost as soon as you hit 18. But many credit offers extended to college students have been rife with predatory practices and implicit in long-term debt burdens.
With this in mind, recent legislation aimed at protecting credit consumers has drastically altered the credit landscape for young people.
What’s Changed in Credit Cards for Young People?
In a word: everything. Consumers are now barred from opening a credit card account until age 21, unless they can provide evidence of financial solvency or get a responsible adult to co-sign. This means that the students most likely to start early on their credit history are those with part-time employment; for others, the question of obtaining a co-signer can open up a sticky financial mess for both child and parent.
As with life-changing transactions like mortgages, co-signing on a credit card for a student indelibly links the co-signer and principal of the credit card. In the event the young person cannot pay their credit card for whatever reason, the co-signer is financially and legally responsible for the outstanding balance. This can negatively impact the credit report of the co-signer as seriously as a default on a personal account.
As of now, there is no way to “break the link” between the two parties for a co-signed credit card; both should consider carefully whether applying for a given account is the right move, by reviewing the terms and conditions and coordinating on any major purchases. If an account is diligently maintained until age 21, it might be a good option to apply independently for new credit around that time, and eventually retire the older account – however, this will penalize the young person’s credit rating to some degree.
What Other Credit Options Are There?
Some students who hold a part-time job may remain eligible for credit in their own right even under new regulations. In some cases, this may include students whose income is derived from on-campus employment, including “work-study” financial aid. Likewise, parents can choose to help their kids become more credit savvy by making them authorized users of existing credit accounts. Unlike a joint credit card in the student’s name, this gives the responsible adult full control over the account. In joint accounts, though the co-signer may receive a monthly statement, all decisions are made jointly.
Ultimately, though new regulations make it more difficult to become established, they’ll also help regulators clamp down on unfair practices aimed at victimizing inexperienced consumers. In the long run, the regulatory situation makes credit a decision that requires dependent students to consult their parents, even if they’re away from home – while independent students who are financially sound will still be able to choose on their own. Instead of looking at it as a burden or unfair intrusion, consider it a chance to teach a few more lessons about financial responsibility in the face of real world challenges.