As a teen, my mom instructed me in how to apply for my first credit card. We went to The Bon Marché, which at that time offered a “student” card with a low limit. Mom told me to buy a pair of socks with my new card. And then we right back to the register and made a payment on my account.
One pair of socks. Charged and paid for that day. And then the card was tucked away in a safe place. Years later, that first credit card (now Macy’s) remains my oldest account – and factors into my credit history, along with newer accounts and my mortgage.
Today’s students may find it more difficult to start building a credit history. Under the new Credit Card Accountability, Responsibility and Disclosure (CARD) Act, cards can’t be issued to people under the age of 21 unless they have an adult co-signer or show proof that they have the means to repay the debt.
The new law aims to address a growing debt problem. The average college student owes more than $3,000 on credit cards, according to a 2009 study. Many students use cards to live beyond their means – not just for convenience.
As we’ve mentioned before on All Consuming, credit card companies are notorious for wooing college students with everything from free pizza to iPods.
So what happens if your kid can’t get a card? Should you co-sign?
“As a co-signer you are responsible for that debt even if your child defaults. It’s their card, but you’re the backup on it,” explains Greg McBride, senior financial analyst with Bankrate.com, told MSNBC’s Herb Weisbaum. “You really need to think about this. If Junior defaults on those payments the card company is going to come after you and that can have a negative impact on your credit.”
The CEO of Credit Karma told a FiLife blogger it’s OK. “As a society, we don’t spend much time teaching children about credit and its importance. By requiring a co-signer, parents can get involved in monitoring spending behavior early, before debt gets out of control," said Ken Li. (For the record, CreditKarma offers consumers a free TransUnion score and credit profile to consumers in exchange for collecting their personal information and pitching them targeted ads, such as a car loan with a lower rate.)
But overall, I found more naysayers than advocates.
Blogger Karen Datko for MSN’s Smart Spending says “absolutely not. Not even if it were the last card on earth, flat-screen TVs were 60% off, and your birthday was four days away. (Particularly not then.)”
College student Zac Bissonnette with WalletPop also says “never.” “I've talked to lots of rich people and I've talked to lots of broke people. I've never met a rich person who is rich because he had a credit card during college. But I have heard from literally hundreds of people in their 20s and 30s who are still digging out of the financial mess they created in college with the help of credit cards.”