For several years, credit card lenders have considered issuing credit cards for students as another strategy to increase the customer base of their company.
College students were literally targeted by financial institutions that set up displays at universities across the country and invited students to apply for their first credit card.
Qualifications and Risks
Clearly, students don’t have a regular income that can be verified. They don’t have credit established so checking a credit rating is not useful. Lenders recognized those problems and created programs to make is easy for students to qualify for credit cards.
For several years, the only requirement was for the student to sign up to receive a new credit account. The practice of issuing credit cards for students became so common that almost all college students had at least one open line of credit and a handy plastic card to present as payment.
Lenders made credit cards available to young adults in the hope the consumer would become loyal to that lending institution. That could provide a customer (and interest income) for the next 20-30 years for that lending institution.
The new accounts proved to be high risk for some students. Many students had no training in financial management. They used their credit line to the limit and found it difficult to pay even the small monthly amounts due on the account. Some of the students contacted varios debt consolidation companies as a try to lower their montly payments. However, most of them graduated from college with credit debt and a damaged credit rating.
Improved Laws Lead to Better Lending Practices
Credit card laws passed in 2008 took effect in 2010. One portion of the new consumer protection law was aimed at preventing lenders from luring students into applying for credit cards without the ability to repay.
Students under the age of 18 could only be granted credit if their parents or guardians co-signed the credit agreement. This protect students as parents who are responsible for the credit charges are apt to be more involved in how the credit card is used.
The law returns credit lending to a solid financial decision where credit is granted based on the ability to pay. The qualifications for student credit cards are still less restrictive than for other credit accounts. The risk of students beginning their adult life after graduation with unpaid debt and a damage credit file is greatly reduced.
Credit cards for students make financial transactions easier for students just as they do for adults. With improved online reporting and management tools, students can learn to budget wisely and to track their spending.
A credit account allows students to buy books and supplies when needed and spread the cost out over several months if necessary. Those who drive to and from school or travel home for weekends and holidays have emergency funds available if needed during the trip.
For a student with a credit card, there is no reason to carry a checkbook which may be lost or cash which could be stolen. The lower credit lines provide an excellent opportunity to learn money management skills. In addition, the student begins to build a credit rating that he will need when he rents his first apartment after graduation or applies for a car loan.
Credit cards for students are a great idea and have been widely accepted as the norm in college and universities across the country. The practice of issuing credit to financially strapped students has been restricted to some extent by the new credit laws. Although the laws may place credit cards out of reach for a small number of students, it will result in consumer protection for those students who do qualify.