Under the Credit CARD Act of 2009, it is now much more difficult for young people to qualify for most credit cards. A credit card can only be issued to someone under 21 years of age if they have an appropriate co-signer such as a parent, guardian or spouse, or if they are employed and can provide proof of their income being high enough to cover any financial commitments made.
The group of young consumers who are most affected by the restrictions being placed on those under the age of 21 are college students. Large numbers of college students previously relied on credit cards for day to day living expenses, but often found themselves juggling several different credit cards and accumulating debt at an alarming rate.
Issuers also marketed credit cards directly at students with introductory offers such as free pizzas and cds. This type of marketing is no longer allowed and young people under 21 years of age are now being forced to consider credit card borrowing much more carefully.
The most popular way for a person under 21 to obtain a credit card is now to obtain a co-signer who will guarantee the credit agreement. This is generally a parent or guardian. If a credit card account is co-signed, it is basically a joint account and it will appear on the credit reports of both parties.
A parent or guardian who is considering acting as a co-signer should consider this because a negative payment history can affect their own credit score. A co-signed account offers parents the ability to keep tabs on what their son or daughter is spending and the credit card issuer cannot increase the credit limit without approval from the co-signer, so there is little risk of the child's debt spiraling out of control without the parents knowledge.
The group of young consumers who are most affected by the restrictions being placed on those under the age of 21 are college students. Many college students used to rely on credit cards for everyday living expenses, but would usually end up with too many credit cards that they couldn't pay down. Some credit card issuers even specifically targeted students with special deal.
These credit card companies are no longer allowed to market this way and younger people under 21 years of age are now being forced to considering credit card borrowing much more carefully. Co-signed accounts are a useful way to educate a young person to manage a credit card appropriately before they apply for a card of their own.
There are various alternatives available for young people if co-signing is not something that a parent or guardian is comfortable participating in. One option is to add your son or daughter as an additional card holder on your own credit card account. This allows the additional card holder to share your own credit limit, so it is important to set a spending limit and to monitor the transactions closely as the main account holder is responsible for all transactions.
Prepaid debit cards are also a popular choice. Parents can load up a card with a set amount, perhaps at the beginning of the college year, and leave the student to spend it as they require. This can be a useful budgeting lesson for a young person and it has no effect on either parties credit score.
Of course, not all young consumers are college students. A spouse can also act as a co-signer for someone under the age of 21, or if the young person has regular employment they can choose to apply for a credit card account solely in their own name. However, they must be able to prove that their income is sufficient to cover the financial commitment of a credit card.
In conclusion, credit card issuers are being forced to carefully consider lending to young people. This has eliminated the danger of young consumers, especially college students, from getting into debt which they cannot handle. New guidelines require that borrowers under the age of 21 have a co-signer or provide proof of sufficient earnings from employment before they will be considered for a credit card.