It’s graduation time, but students sticking around another year or more would be wise to start the credit-building process with a student credit card.
The Credit CARD Act of 2009 went a long way towards protecting consumers from unfair fees and practices. But another thing it did is essentially work to protect us from, well, ourselves – young adults, especially. One of the ways it did so was by making it a lot more difficult for college students and consumers under 21 years of age to get approved for a credit card.
Under the Credit CARD Act (which stands for Credit Card Accountability Responsibility and Disclosure), consumers under 21 years of age must show proof of sufficient income, or provide a co-signer to get approved for a credit card. The result is a more arduous process to get approved for a student credit card if you’re a young adult hoping to begin building your credit history early. That said, it’s still as important as ever to build your credit history while you’re young, and many student offers are actually pretty solid and can include cash back or 0 interest credit cards.
There’s no defined number or rate for what amounts to “sufficient income”, leaving some serious guess work to the process of applying for a card. That said, there are a few things young consumers eager to get approved for a card can do to help their cause.
1.) Talk Mom or Dad into co-signing
First off, your parents have a right to be hesitant when it comes to co-signing on a credit card with you. It’s no secret that young adults can run into financial trouble early with irresponsible use of a credit card. Make sure your parents know that your main prerogative when applying for a student credit card is to build credit and not to go on an off-campus shopping spree.
And actually, building your credit while you’re young is as important as ever now that creditors have pulled back on easy lending in the post-Great Recession years. For example, consumers interested in applying for a car loan post-college can expect some serious push back if their credit score is average or non-existent. Building credit now is crucial when it comes to your loan approval chances later.
Let your parents or guardians know that building credit in college isn’t just important to you – it’s important to future lenders as well. If your past history with money is solid, hopefully they’ll agree to co-sign on the application form for you, and remember to remind them that the co-signing agreement doesn’t have to be permanent.
If they’re still not on board, there are other ways to build credit during your college years.
2.) Provide income information on your application
This next step is trickier, since again there’s no defined number for what exactly “sufficient income” amounts to. If you work full or part-time and you’re under 21 years of age, be sure to provide accurate income information when applying for your credit card. Odds are this will be required and verified anyway, but it’s good to have the information readily available when applying.
The general rule is that credit card issuers must confirm that the consumer applying for the card can pay their monthly bill each month. It’s really that simple, but each issuer has their own minimum qualifications for what they consider “sufficient income”.
A full-time income is not required, but having your own steady income is. If you want a credit card and you don’t have a co-signer, the short and sweet of it is that you’ll need a job to qualify.
3.) Consider a secured credit card
While not technically in the category of “student credit cards”, secured credit cards are an excellent option for under 21-year-old’s with limited or no credit to consider.
First, their approval rates are higher since they really hinge on whether or not a customer can provide the minimum security deposit required to open such a card (generally between $200 and $300). Security deposits are fully-refundable, and a year or so of responsible spending with a secured card can lead to a more lucrative unsecured offer down the line.
Second, secured credit cards are proven credit-builders, and also work well for consumers with poor or below-average credit looking to rebuild their scores. There are some secured cards available through national networks – including Capital One and First Progress – and odds are your local bank or credit union offers their own secured card as well.
Secured cards don’t exclude the requirement that an applicant must show sufficient income for approval, but they are known to provide higher approval rates for no credit consumers under 21 years of age.
To sum it up, if you want to get approved for a student credit card in college, you’ll need either a co-signer, a steady income, a security deposit or all of the above to get approved – though usually just one of the three will suffice.