The Credit Card Accountability and Disclosure Act of 2009 (CARD Act) was designed to protect consumers from unfair credit practices, including excessive fees, overnight interest rate hikes, and confusing terms. It also protects young adults under the age of 21 from aggressive marketing tactics from credit card companies.
Once the bill went into effect, credit card companies were prohibited not only from marketing on college campuses, but from issuing credit cards to anyone under the age of 21 unless certain requirements were met.
While the CARD Act helps prevent teens and young adults from easily obtaining credit and racking up large amounts of debt, it also makes it difficult to establish a credit history if you’re under 21. So what do you do if you want to establish credit? While your options are limited, you can still get a card under these conditions:
If you have a job and can prove you have a steady income, you may get approved for a credit card even if you’re under 21 years of age. The amount of money you must earn depends on the bank or card issuer. Many credit card companies offer student cards that will accept even part-time jobs as sufficient income. The credit limit is usually low, but it still allows you to establish a credit history.
A co-signer is someone over 21 who assumes joint liability for a credit card or loan. When you have a co-signer, the card is in your name and your co-signer’s name. While this allows you to establish credit in your name, it also affects your co-signer’s credit as well. If you miss a payment, max the card out, or continually pay late, it will be reported to your co-signer’s credit.
If you go this route, make sure you protect your co-signer’s credit by always making payments on time. Communication is also important, so inform your co-signer if you think you won’t be able to make a payment.
Another option is to have your parent or another adult add you as an authorized user on their credit card. The company will issue you a credit card in your name, and you will be able to use it. It will also be reported to your credit report as if it were your own. Authorized users are not legally responsible for the debts they incur, nor are they responsible for making the payments.
Before you decide to become an authorized user, keep in mind your own credit can be negatively affected if the cardholder misses a payment. It’s also important to find out what spending limits, if any, the cardholder wants you to adhere to.
A secured credit card is a popular option for people who would like to build a credit history or who rebuild poor credit. A secured credit card works like a debit card but is reported to credit histories. You provide the card issuer with a cash deposit, usually anywhere between $300 and $500. This serves as collateral and also acts as your credit limit. By keeping the card under the limit and making your payments on time, you can establish a credit history.
Establishing a credit history is a necessary part of obtaining credit. Getting a credit card if you’re under 21 is difficult, but it’s not impossible. These tips will help you build your credit and learn to use credit wisely if you’re under 21.