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.
And if the pandemic hurt you financially, now might be a great time to look into getting one to jump-start your journey on the road to financial health.
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 cards.
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 younger than 21 could no longer get approved without either having a co-signer or being able to prove an ability to repay any debt they incurred.
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 cellphones to apartments and loans,” said Laks Vasudevan, SVP, Consumer Card Product Management at Huntington National Bank.
“So it’s important for college students to start building a strong credit history early on,” she added.
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,” Lent said.
“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® 2 “Cash Back, No Fees” 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 from $500 up to $10,000 – and provides cash back rewards.
In addition, the Petal® 1 “No Annual Fee” Visa® Credit Card is a good card for building credit and offers a credit limit from $500 up to $5,000; it, too, may factor in alternative financial information such as your bill payment history and income, which could result in a higher credit limit and lower APR.
Both cards are designed for people with no credit history but if you do have a history, it must be fair or good to qualify for the Petal 2. If you have a credit history and your credit score is lower, the Petal 1 would be the one for you.
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, your major and the likelihood of your 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, one year of Amazon Prime Student (after spending $500 in the first three billing cycles with your EDU card), no annual fee and a credit limit of up to $5,000.
“Not all credit cards are the same,” Vasudevan said.
“Before deciding to apply for a credit card, students should evaluate different cards’ rates, features, benefits and fees.”
See related:Choosing a student credit card
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.
Among the major credit card issuers, only Bank of America belongs 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 the co-signer’s credit.
If you’re under 21 and can’t find a co-signer, Freddie Huynh, vice president of data optimization at Freedom Financial Network, recommended waiting until you’re old enough to be able to use more income sources.
“Students can build credit without a credit card,” he added.
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 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,” Huynh pointed out.
It’s important to consider the benefits of building credit and potential dangers of getting into credit card debt.
Personal finance blogger Lent, for instance, said 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.