Getting a student credit card is going to be harder starting in February 2010 thanks to the credit card reform bill that was passed this summer.
The new legislation prohibits credit card issuers or banks from issuing credit cards to anyone under 21 unless they have an adult co-signer or proof that they can cover the monthly credit card payments.
The changes are actually a good thing for young adults who probably haven’t yet learned how to manage credit wisely.
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Sallie Mae, the company that provides federal and private student loans for undergraduate and graduate students, did a study that found 84% of undergraduates have one credit card and 50% carry four or more credit cards. Young adults graduating with credit card debt with exhorbitant interest rates are creating a financial burden for themselves.
Now that you will probably be co-signing a credit card application with your child and you’ll be on the hook financially, you should make sure your child understands how to use credit to their advantage and not to their detriment.
A good place to start is to educate your child about credit first. The following are some tips on building credit.Open a checking account or savings account in your child’s name, having a financial history will help with getting loans, and also gives you the ability to pay back the loans.Make sure your child pays their credit card bills on time.Keep their balances low (if possible) on “revolving credit” (i.e., credit cards).Don’t let your child open lines of credit that they don’t need.The length of your child’s credit history plays a factor in the credit score they receive and the interest rate they will pay on loans.
Credit is a good thing when used properly and teaching your child how to use credit properly will benefit him or her for the rest of their life. Helping them build a credit history early on will raise their credit score and lower the rates they will be offered in the future, enabling them to get a lower mortgage rate when buying their first home.