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Topics addressed on January 19, 2011:
Why banning access to credit for students is a bad idea
I currently have no credit history and graduated from college last year. I have applied for two credit cards four months apart and got denied for both due to insufficient credit references and revolving credit accounts. I really want to establish my credit for the future. What can I do to get approved the next time? Also, is there anything else I can do to start building my credit?
A college professor was quoted in a recent story published on ConsumerAffairs.com suggesting an outright ban on marketing credit cards to college students. Your situation is the perfect example of why that is a bad idea.
You need an established credit history when you leave school and enter independent, adult life. A positive credit history is necessary for renting an apartment, buying or leasing a car, and perhaps even when applying for a job.
There is little recourse for you at this point other than to have someone, perhaps a friend or family member, cosign a loan with you or add you as a joint holder on one of their accounts. Your bank or credit union might approve a small loan or low-limit credit card that would get your credit history started. They may also offer a card secured by savings you deposit there. Then it is simply a matter of time for your credit history to grow as you show that you can use and manage credit.
The ideal time to establish credit was while you were a student. Credit offers provide one of the most important and convenient ways to obtain credit for the first time, and credit card companies are eager to have students as customers with the hope that they remain loyal customers when they graduate and increase their buying power.
However, too many students abused the privilege and legislation was passed to help protect students from the temptation to overspend on credit. Although heavily restricted by the recent legislation, lenders still may offer credit accounts to students. However, lenders cannot offer physical enticements such as T-shirts or other prizes for students who apply for their credit cards if they are engaging students on campus or for an event sponsored by or associated with the school.
They also cannot grant credit to students under the age of 21 unless the student has a cosigner, can demonstrate they have a source of funds to pay the debt, or have completed a certified financial literacy course.
A student under 21 can receive preapproved offers, but must opt-in with the national credit reporting systems in order to do so.
The law’s provisions provide means for young adults to obtain credit while they are still students, enabling them to establish a strong financial foundation before entering the workforce.
Because the restrictions often force parental involvement, they create the opportunity for parents to teach their students about how credit should be used. That is a good thing!
Totally banning lenders from opening credit accounts for students and young adults would eliminate their access to credit and other valuable financial services, and potentially could reduce their future financial opportunities, as you have experienced.
That’s not to say that reasonable, enforceable restrictions on unfair or deceptive marketing should not be in place. We just need to be certain that any restrictions do not inadvertently do unintended harm.
Getting a credit card while you are student and using it wisely can be a powerful financial tool as you enter the workforce.
Thanks for asking.
- The "Ask Experian" team