Student Choices for Building Credit
In less than two weeks the credit card reform act will officially become law in its entirety. One of the provisions of the new set of laws deals with students access to credit cards. It’s no secret that the credit card companies have aggressively marketed to students through the years.
Each and every fall, as the school year begins, credit card issuers would flood college campuses across the nation. They would offer everything from free pizza, to T-shirts, to umbrellas, just to get a student to fill out a credit card application.
And predictably, the students acquired a high level of debt. Now we all know how expensive tuition is, and when you add thousands of dollars of credit card debt it becomes a serious problem. That is why legislators have moved to offer some forms of protection that will make easy credit less accessible.
One of the downsides of this is that, truth be told, a credit card is a great way to build up a strong credit history. It’s also probably the easiest, as opposed to such other things as a mortgage, car loan or personal loan.
There are, however, alternatives that will still allow a student to build a strong credit rating while simultaneously mitigating some of the risk. What I mean by risk is irresponsible spending and payment activity.
I don’t want to get into a debate here about how college students are adults and should be able to make their own decisions. The fact remains that some obviously are not ready to use credit responsibly. These are the very people that could use a little bit of guidance.
The first alternative is to get a joint credit card with their parents or some other responsible adult that would be willing to do it. This would involve being added to an existing credit card account, or opening a new one.
The student would receive their phone card with their name on it and would have all the features, benefits and protections that the primary cardholder enjoys. The flip side of that of course is that the primary account holder is responsible for everything that happens with that card.
So if the student runs up a large bill and can’t afford to pay it, the primary cardholder is still on the hook. The key here is for the parents to keep a very sharp eye on the spending activity. If the young man or young woman is not acting responsibly, the card should be taken away from them.
Another alternative is for the student to apply for their own credit card with a cosigner. As a matter of fact, unless students can show that they have the ability to pay their credit card bills, they will be required to have a cosigner anyway under the new laws.
It must be stated that the cosigner is reliable for all debts acquired on that account. The rules are pretty much the same as they would be for a joint credit card account. That means that parents are responsible for everything that happens on the account.
With both of these choices there is potential for the parents credit history to be damaged if the student does not act responsibly. That is a risk that they must weigh for themselves.
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