What can you tell me about the debit and credit card options for students under 21?
Bill Hardekopf, chief executive officer of Lowcards.com, says the CARD Act began limiting credit options for students under the age of 21 in February. Hardekopf notes the good news is that the regulations protect students from aggressive credit card marketing on campus, but the law also restricts credit availability for students.
"Credit cards represent freedom and independence for college students, especially that first year when living away from home is new and exciting. The more they understand about the correct use of credit and its consequences, the more responsibly they can handle it," says Hardekopf, author of the Credit Card Guidebook.
Hardekopf notes these options:
Credit cards: Students under the age of 21 can get a credit card if they have a co-signer or has proof of the ability to make payments. Co-signing should only be an option if your student can use a credit card responsibly. If the student makes a late payment, it also shows up on the co-signer's credit report. If the student can't pay off the debt, the co-signer is responsible for all the debt.
Debit cards: These cards are tied to checking accounts. Opt out of overdraft coverage to avoid overdraft fees. Online account alerts can notify you when the account falls below a specified balance. Debit cards do not help build credit scores and there may not be a sufficient balance during an emergency.
Prepaid cards: These can be purchased anywhere, even grocery stores. However, they also have fees, so read the fine print before you purchase.
Secured cards: These cards have more fees and the interest rate is high, so pay them off each month. But secured cards are relatively easy for anyone to get because they are secured by a prepaid deposit. Make sure that the card reports to a credit agency. Secured cards from Orchard Bank and Public Savings Bank both report to credit agencies.