Protection for young adults key piece of new credit laws

Protection for young adults key piece of new credit laws

by Russ Wiles The Arizona Republic Apr. 3, 2010 12:00 AM

Recent legislation passed by Congress made several key changes affecting all credit-card users. But one group was singled out: young adults.

The new rules restrict credit access for college students and others below age 21. Anyone younger than that must show an ability to make payments, such as with job income. Otherwise, they may need someone such as a parent to co-sign. Consumer advocates welcomed the restrictions for helping to keep novice borrowers out of trouble - and for good reason.

Credit cards
have become nearly as common on campuses as textbooks. About 84 percent of students had at least one card in a 2009 survey conducted by Sallie Mae.

The average debt was nearly $3,200, and less than one-fifth of student card users paid off their balances each month.

Clarissa Dodge, a senior at Arizona State University, just got her first card within the past year and quickly racked up a debt of $700. She was enticed, and confused, by an offer in which she thought the card company would cancel her balance for three months. Instead, as she learned, it was an offer allowing her to defer payments for three months.

"Also, I didn't realize you're not supposed to keep a balance," she said.

Dodge still has the card but has paid off the debt - and plans to keep it that way.

"Having anything on that card was stressing me out," she said.

Since the law took effect, credit lines for students are starting out lower, often around $500, said Bill Hardekopf, chief executive officer at researcher Lowcards.com.

Also, card companies can't market their products so aggressively, with restrictions on those free-merchandise lures to get students to sign up.

"It was really easy to get a card," said Lori Lasiter, a 20-year-old ASU sophomore who obtained a card two years ago. "I went online, filled out the form, and it got sent a week later."

Lasiter uses her card mainly for emergencies and rarely carries a balance.

"But I see how it can get out of hand," she said.

The new card rules provide an opportunity for parents and other adults to teach students about credit and wise money management.

"We all want it now, but there's something to be said for delayed gratification," Mike Sullivan of Phoenix debt-counseling firm Take Charge America told members of the Alpha Phi sorority at ASU during a recent visit. "If you delay some of these purchases, you'll be better off."

Among his tips for students: Don't get a credit card until you have job income, pay off balances in full each month and monitor your credit reports at annualcreditreport.com.

Phillis Sax Pilvinis, a Valley financial adviser, urges parents to teach good habits.

"It's a parental responsibility to lay out the parameters," she said. "Children have to know how these things work."

Given the rule changes, Hardekopf outlined some credit options for college students:

• Co-signed cards. Students can apply for cards with an adult or other parent. If a student can't pay off a debt, the card issuer will demand payment from the adult, Hardekopf noted. Activity is reported on a student's credit report, helping to boost credit scores if payments are made on time and for more than the minimum. But delinquencies also can show up for both parties.

• Authorized users. Hardekopf calls this an "apprenticeship" to teach wise credit use. Parents or others can give a student permission to use their cards by adding the student to the account. The student receives a card without being legally responsible for paying debts and can benefit from an adult's good credit history.

• Debit cards. It also can be smart for students to open a checking account with a debit card. While debit cards carry overdraft fees, students can't get into as much trouble with them, Hardekopf said. Pilvinis favors debit cards for regular, ongoing expenses.

• Secured and prepaid cards. These require deposits or other payments up front and often carry hefty fees, Hardekopf warns. Some cards report payment activity to credit bureaus, but others don't. Using these is like putting down a security deposit on an apartment.