Sunday, December 26, 2010

Credit Card Approval for Young Adults

Getting credit cards for young people isn't as easy as it was before. And for good reason. With college students graduating with an average of $2000 of debt, it shows a problem that must be addressed. What that statistic shows is that young people aren't so savvy when it comes to handling personal finances. It doesn't also help that credit card issuers used to target college students and young people with abandon. This is why there are provisions in the Credit Card Accountability, Responsibility, and Disclosure Act (or the CARD Act) where those under age 21 would not be granted a cards unless they have a co-signee or are able to show their capability to pay off their financial obligations. Through this law, young people are better protected from carrying debt at such an early point in their lives.

The new regulation may make it harder to get a card, but it also makes it safer for young people to own a credit card. Before anyone under 21 can be approved for a card, he or she should show some form of income or asset that can offset possible debt. Having a part-time job, a trust fund, or any other form of income would be sufficient to show that you can pay off what you owe. And if you don't have those, other options would be to get a co-signee who would pay the debt if you default, or have you sign up as an authorized user under your parent's credit card. Young people may have a few more hoops to go through, but it's all for the best.

One challenge that kids may encounter in applying for a card is that some issuers don't like having co-signees. This is because with a co-signee, the legal responsibility is split between the cardholder and the co-signee. Companies prefer the authorized user setup since it would be easier to go after the parents should the kids' debt swell up.

Another challenge is that some credit card accounts don't report authorized users to credit rating organizations. This means even if your kid has a card under his or her name, no credit history will be built. That takes away one of the biggest advantages of having a credit card early, and that is to create a good, solid credit history to make it easier to apply for loans and financial aid in the future.

With those in mind, you should make sure that your co-signee has a good credit rating to appease the minds of issuers. Also, before signing up as an authorized user, make sure that it gets reported to credit reporting agencies. Once you have those set, you place yourself in a better position in reaping the advantages of owning a credit card early. The system may make it harder to get a card for young people, but it also makes it easier to keep kids on the right track when it comes to credit card management

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