The following pages provide essential information that will help you wisely choose and responsibly use a credit card. This information will also give you a clearer understanding of your consumer rights as they pertain to credit cards.
For years, college students have been a privileged group of individuals who were able to obtain a credit card in their own name without need of a prior credit history, employment, or a parent’s co signature. Most young adults gladly took advantage of the opportunity since a credit card is a great financial tool. It is often more convenient than cash, is useful in an emergency, allows one to establish a credit rating and offers valuable consumer protections under federal law. Since President Obama signed into law the Credit Card Accountability, Reliability and Disclosure Act (Credit CARD Act of 2009) on 5/22/09, young adults under the age of 21 must now prove they have sufficient independent income to repay their debt or have a co-signer over the age of 21 sign their account before they will be granted a credit card. The co-signer must have a means to repay the credit card debt incurred by the younger adult just in case the younger individual fails to meet their financial obligation. Obviously, it is not a good idea to co-sign for a friend’s credit card account.
The Credit CARD Act of 2009 provides strong consumer protections which help to establish a more fair and transparent credit card industry. However, mutual responsibility is necessary. All the protections in the world won’t help the irresponsible individual who doesn’t bother to pay bills on time, goes over credit limits, skips payments and spends excessively. One must always remember that a loan is incurred each time a credit card is used and loans must be repaid. Irresponsible credit card use can result in excessive debt and a poor credit score. And research has shown that students who are burdened with excessive credit card debt often have lower GPAs and can suffer from depression.
The restrictions in marketing to students mandated by the Credit CARD Act of 2009 appear to be effective. A recent joint survey from Sallie Mae and Ipsos Public Affairs entitled, “How America Pays 2012” reveals that student credit card ownership is on the decline as is the average outstanding credit card balances held by younger adults. In the face of this decline, credit card companies are offering more prepaid debit cards to young customers.
While student credit card debt falls, student loan debt has almost tripled between 2004 and 2012 and stands at $966 billion as of the fourth quarter 2012, according to the Federal Reserve Bank of New York’s Household Debt and Credit Report. This represents a 70% increase in the average balance per person and is of concern to many.
A key to success is not being burdened by debt. Accordingly, you will benefit immensely from learning at an early age how to properly manage money. Understanding how credit cards work and engaging in responsible credit card behaviors is a fundamental requirement of good money management. Mistakes avoided today are sure to have a positive impact on your tomorrows.
Carol A. Carolan Ph.D.