Since the Credit CARD Act was signed into law a decade ago, it’s become more challenging for college students to get approved for their very own credit card. Here’s what you need to know about why it’s more difficult nowadays and what you can do to improve your chances of getting approved.
Getting a credit card as a college student can help you establish a credit history and learn how to use credit responsibly.
But since the Credit CARD Act was signed into law a decade ago, it’s become more and more difficult for college students to get approved for their very own credit card.
If you’re considering getting one, here’s what you need to know about why it’s more difficult nowadays and what you can do to improve your chances of getting approved.
How the CARD Act changed the game
Prior to the CARD Act, getting a credit card as a college student was relatively easy. Each term, credit card issuers descended on college campuses, handing out free food and swag in exchange for completed credit card applications, and you didn’t need significant income or even a job to qualify.
When the law was passed, however, the federal government created several consumer provisions that would protect students from getting a credit card before they were financially ready. For starters, applicants under 21 could no longer get approved without being able to prove an ability to repay any debt they incur or having a co-signer.
Also, card issuers were no longer allowed to market their products to students within 1,000 feet of college campuses, and couldn’t offer free stuff as an incentive to apply.
The result is that while there are plenty of student credit cards on the market, many students will have a hard time getting one, at least not without knowing what to look for.
“Credit scores are used to make decisions about almost everything, from cell phones to apartments and loans, says Laks Vasudevan, vice president of card programs, strategy and marketing at Discover. “So it’s important for college students to start building a strong credit history early on.”
While it’s possible to achieve this goal without credit cards, it’s not a bad idea to learn how to start using them responsibly. Here are some ways to improve your chances of getting one.
See related: Student Card Survey: More cards, bigger charges
Know what you can count as income
Even before the CARD Act was passed, it was hard for some students to qualify for a credit card based on income, including Athena Lent, author of the personal finance blog Money Smart Latina.
“I ended up getting credit cards after the act pretty easily,” says Lent. “I started with store credit cards then moved up … and I think growing my income helped tremendously.”
Now, federal law states that credit card applicants under the age of 21 must either be able to prove enough independent income to show an ability to repay the credit card debt or get a co-signer.
The problem is that credit card issuers don’t share publicly what income level they’ve determined is sufficient to show an ability to repay. What’s more, most major credit card issuers don’t allow co-signers.
If you’re 21 or older, you can count any source of income that you have a reasonable expectation of access to, which includes third-party income.
If you’re under 21, though, you’re limited on what you can count as income. Options include regular earned income or allowances and scholarship or grant money you receive directly and in regular intervals instead of a lump sum each term.
By understanding what you can count as income, you can ensure you claim the maximum amount possible and improve your chances of meeting the card issuer’s minimum requirement.
Look into alternative credit products
In addition to an income requirement, some student credit cards may also require at least some credit history to get approved. Without a credit card, though, there aren’t many other opportunities for young adults to establish a credit history.
Fortunately, there are some relatively new products on the market that consider alternative credit data to make an approval decision.
The Petal Visa Credit Card, for instance, will consider your credit history if you have one. But if you don’t, you’ll be asked to link your bank accounts during the application process, and Petal will look at how you manage your money through income, expenses and saving habits to determine your financial responsibility and the likelihood that you’ll pay your bills on time.
If you’re approved, the card also charges no fees whatsoever, offers a credit limit of up to $10,000 and provides cash back rewards.
The Deserve EDU Mastercard for Students is another option to consider. Instead of judging your application based solely on your credit and income, the card’s issuer also considers your school, major and likelihood of graduating and getting a job.
The lender will also ask for bank information to assess how much cash you have available and what kind of credit limit you can afford. You can even qualify for the card as an international student without a Social Security number.
The card offers cash back rewards, a one-time reimbursement for Amazon Prime Student membership fee, no annual fee and a credit limit of up to $5,000.
“Not all credit cards are the same,” says Vasudevan. “Before deciding to apply for a credit card, students should evaluate different cards’ rates, features, benefits and fees.”
Work with an issuer that allows co-signers
Even card issuers that consider alternative credit data are still legally required to consider your ability to repay any credit card debt you take on. So if you have no income at all, your best bet may be to apply for a credit card from an issuer that allows co-signers or joint account holders.
Among the major credit card issuers, only Bank of America and Wells Fargo belong to that group. While these banks offer solid products, you may find a better fit for you by checking with community banks in your area and local credit unions. You may also want to look at other national issuers that offer student credit cards, including Sallie Mae.
Before you do, though, make sure you have someone, such as a parent, who’s willing to co-sign on your application. Also, have a discussion about the responsibilities of co-signing and how it might affect their credit.
If you’re under 21 and can’t find a co-signer, Freddie Huynh, vice president of credit risk analytics at Freedom Financial Network, recommends waiting until you’re old enough to be able to use more income sources.
“Students can build credit without a credit card,” he adds.
For example, getting added as an authorized user on a parent’s credit card can help.
See related: What’s the minimum age to be an authorized user?
The bottom line
The CARD Act is an important law that helps protect college students from getting in over their heads too easily. But while student credit cards nowadays are designed specifically with college students in mind, being in school isn’t enough to get approved on its own.
As you figure out how to maximize the amount of income you can claim on your application, consider alternative credit products and seek out a co-signer, you’ll have a better chance of getting the right card for you to begin building your credit history.
Don’t think you have to get one, though.
“The decision to get a credit card is an individual one for each student and family to make,” says Huynh.
It’s important to consider the benefits of building credit and potential dangers of getting into credit card debt.
Lent, for instance, says her attempts to get credit cards when she didn’t earn enough were so she could fuel her shopping addiction at the time, and she’s glad she didn’t qualify for them until she had a better handle on her money management.
As you consider whether a student credit card is right for you, think about both the benefits and potential drawbacks of having one in your wallet.