Most of us know that it’s important to start building a positive credit history as soon as possible. After all, having good credit is essential to so many aspects of our financial lives – everything from renting an apartment to buying a car depends on it.
In the past, young adults could get started with their own credit cards as soon as they got to college. But with the CARD Act of 2009, this rite of passage has been largely halted. Now it’s much more difficult to get a credit card if you’re under 21, and some college students are so confused by the question of whether or not they need a co-signer that they’ve given up on the idea of credit cards altogether.
If you’re under 21 and looking to get a credit card, take a look at the information below to fully understand the co-signer requirement.
CARD Act makes it tougher for college kids to get plastic
Back in the bad old days, credit card issuers used to set up stands at colleges and universities on move-in day and offer students free T-shirts and food for signing up for a card. This, unfortunately, is how many people were introduced to credit. Students would run up debts based on their parents’ income, even though the parents weren’t on the hook for the debt. They’d start their financial lives deep in debt and struggle to get back on track.
Luckily, the CARD Act banned this practice, and the marketing of credit cards to college students has been significantly reined in. However, the same legislation also made it much tougher for people under 21 to get a card at all.
According to the law, you must have a co-signer to obtain a card if you’re under 21, unless you’re able to document that you have the income to repay the debt. Since most college students aren’t able to work enough hours to meet this requirement, a co-signer is almost always required.
This can be a serious roadblock to young people interested in getting a credit card; co-signing is a big responsibility that a lot of people don’t want to take on. Remember, co-signing a card means that you’re responsible for making payments if the primary cardholder doesn’t. Many parents of young adults (the most likely candidate to co-sign a card) simply don’t want to take the risk of their child overspending or failing to make payments.
You may need a co-signer no matter how old you are
While it’s true that the CARD Act’s requirement that people under 21 obtain a co-signer unless they’re able to document a substantial income was meant to keep young people from abusing credit, most people don’t realize that the law tightened up lending standards for everyone seeking a credit card.
This is because in order to qualify for a card, you must be able to prove that your independent income is substantial enough to make the card’s payments, no matter what your age is. Of course, this is do-able for most people working full time. But if you’re over 21 and can’t meet the income requirement, you’ll have to find a co-signer.
The exception: stay-at-home parents
While the CARD Act has been successful in reducing fees and interest rates paid by consumers, one major flaw came to the attention of lawmakers in 2012: the part of the act that requires borrowers to have an independent income that’s high enough to support making payments on the card was shutting stay-at-home parents out of getting credit in their own names.
Due to public outcry, the Consumer Financial Protection Bureau (CFPB) added a new rule to the law that allows people with “reasonable access” to income to qualify for their own credit cards. This has allows stay-at-home parents to dodge the independent income requirement. However, anyone who doesn’t fall into this category must prove that they make enough money to pay for the charges on their cards, regardless of age.
The bottom line: although it’s true that most people under 21 now need a co-signer to get a credit card, this isn’t the whole story. Those under 21 with a substantial income don’t need a co-signer, and those over 21 without a monthly cash flow will. Be sure you fully understand whether of not you’ll need to find a co-signer before applying for your first card!
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