How the credit CARD act benefits students

Since the introduction of the Credit CARD Act, fewer students are now taking out credit cards. However, those who are eligible now find themselves having to perform more credit card reviews to ensure they are getting the best deals.

Before the Act was introduced, students often found that their colleges had affiliations with credit card providers who would happily sign them up based on their parents’ income. Students were taking home their free gifts safe in the knowledge they would have a large credit limit waiting for them to spend the next time they visited the ATM or their favorite store. The problems occurred, however, because the students themselves were liable for the debt they ran up.

Debt problems became commonplace on many campuses as students found the temptation to ‘spend, spend, spend’ simply too hard to resist. One such student, Carolyn McLean, a senior at Michigan State University spoke to Business Week about the problem. She explained that it was “really easy” to get hold of her first credit card and to spend way beyond her means: “It looked like free money, I guess, at that age.”

It was stories like Carolyn’s that prompted the government to introduce the Credit Card Accountability Responsibility and Disclosure Act (Credit CARD Act). The Act affects people aged 18 to 21 and prevents them from obtaining credit cards without being able to prove that they, themselves, have the means to make repayments. There is also the option to have parents or guardians co-sign a credit agreement.

The Act also prevents the credit card firms from marketing their cards to young people in the way they used to – by giving out free gifts and having stands at freshman events. Along with the benefit of preventing students getting into debt they can’t afford, the Act has also helped those who can afford a credit card to make a more informed decision about which credit card will be best for them.

Since the Credit CARD Act was introduced, a student needing to review credit cards is more likely to get a balanced view of the options available. Instead of being bombarded with promotions from credit card firms affiliated with their colleges, they can now take time to choose their card based on the best rates and the best rewards programs.

The Federal Reserve has carried out research that shows the act has been successful in reducing the number of students with credit cards, which will ensure that young people do not emerge from their education with crippling debt.

There has also been a drop-off in the number of branded college credit cards and alumni cards being issued as a result of the act, leaving graduates to make their decisions based on their own review of the credit cards on offer.

Many credit card firms offer great rates and terms for young people looking to get their first credit cards and these can really benefit responsible young borrowers by helping to build their credit history.

Michigan State University alumnus, Brett Stockwell, told Business Week that he found it extremely hard to get his first credit card after graduating because he had no credit history. The college’s Federal Credit Union personal finance instructor, Pamela Boyce, said that it is important that responsible students still have access to credit cards to enable them to build up their credit history for later in life.

So, the advice to students looking for credit? If you can afford a credit card, or your parents are willing to co-sign your application - and give you some help repaying debts if you encounter problems - go ahead and apply – it can be a great way of building a valuable credit history. Remember, it’s always wise to consider your options very carefully and shop around for the best credit cards online  CreditSense.