Fresh high school graduates have a lot to think about, often including but not limited to moving away from home, buying textbooks for college and finding a desirable area of study. Opening a new checking account is typically on this list; applying for a credit card is not. Although the CARD Act of 2009 restricted the age of credit card holders to 21 or above with a few exceptions, college students should still prepare for the milestone of building their own credit as they prepare to enter the “real world.” Here are some tips to keep in mind:
Understand the Terms and Conditions
Students frequently fall for the allure of opening a store credit card, which is usually offered at the cash register with an immediate 5-20% discount off of that purchase. Without full understanding of what obtaining a credit card entails — sometimes the cashier fails to mention that it is a credit card at all — one could inadvertently get roped into a loop of high interest rates and a card that is limited to shopping at only that store.
Proof of Income or Co-Signer
For someone under 21 to be approved for an independent credit card, he or she must demonstrate proof of a steady income or have a co-signer (usually a parent). Those who are of age or meet the other qualifications should carefully weigh the features of available credit cards, such as great rewards vs. low APR.
Secured credit cards offer a way to begin building credit responsibly, with a line of credit directly tied to the amount given to the company as deposit. As secured credit cards often have unavoidable annual fees, however, this should be considered a short-term plan.
Another option, if the goal is simply to acquire a credit card for the student to use, is for parents to open a credit card under their own account, which wouldn’t build the student’s credit but at least won’t leave them strapped for a method of payment.