This entry is part of a series of topic blog entries examining how college students may build good credit in tough economic times. As an activity for a multiplatform storytelling graduate course, these entries display my contribution to contemporary journalism in relationship to blogging/online writing and storytelling without compromising traditional journalistic methods such as accuracy and timeliness.
Today, regulations of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 go into effect.
Signed into law last May under the Obama Administration, the legislation aims to protect Americans from exorbitant rate increases and hidden fees.
The Credit CARD Act also intends to protect unsuspecting college students from falling prey to credit card companies that jump at the opportunity to solicit credit cards to young people.
In the past, it was relatively easy for college students to obtain a credit card. In fact, many companies would go to college campuses and persuade college students to apply for credit cards to obtain “free” merchandise (i.e. t-shirts, hats, food, etc.).
According to the new rules, anyone under 21 trying to obtain a credit card must prove they are able to repay the money by having a solid credit score and stable, independent income, or else provide a cosigner. Credit card companies may not raise credit limits for these consumers without approval from the cosigner.
Additionally, credit card issuers must obtain permission to offer credit cards to students on campus, and the credit card companies are no longer permitted to lure students into applying for credit cards with prizes or giveaways.
Furthermore, all colleges and universities that have been paid by credit card companies to give out student contact information must make these arrangements public as part of a Credit CARD Act disclosure rule.
Of course, credit card debt is not the only way to damage credit, but credit card mismanagement is one of the easily ways to get in debt – especially in a struggling economy.
In 2009, 37 percent of college students at four-year institutions had a credit card in their name, according to a study done last year by the Student Monitor, a research group. (See New Rules Place Barriers Between Students, Credit Card Issuers)
The group reports that approximately 40 percent of college students at these institutions carried over an average balance of $495 into the next month instead of paying off the credit card each month.
Although the regulation may prevent students from being ripped off or graduating with a mountain of credit card debt, the Credit CARD Act may also hinder students from establishing credit before entering “the real world,” when it is essential to have good credit to borrow money for cars or a home or to apply for jobs. Still, college students can take steps to build credit despite the tough economic situation. (For ways to build credit visit http://www.ftc.gov/bcp/conline/edcams/gettingcredit/yourcredit.html.)
Why is good credit so important?
The United States has a credit-based economy in which lenders determine a borrower’s likelihood of making future repayments (as opposed to making a full payment upfront for a product or service) by accessing the borrower’s credit report.
The FTC considers credit “your financial trustworthiness” since good credit makes it easier to obtain loans and qualify for low interest rates (possibly resulting in smaller monthly repayments) for purchasing cars, homes, etc. Some potential employers may even check credit reports in a process calling “running a credit check” for job candidates.
A credit report is an summary of your credit history file that includes your credit payment history as well as your credit score and information about your income, debt, if you have filed for bankruptcy, are in collections or have been involved in legal cases (i.e. lawsuits, arrests, etc.).
Don’t panic in tough economy
No, the economy may not be the greatest right now, and you may not have made wise financial decisions in the past, but it is never too late to start repairing or building your credit.
Credit cards do not have to bring bad consequences as long as you use them with discretion. In fact, credit cards come in handy in case of an emergency or for online shopping, and as a college student, I have learned that it is not worth charging a $5 cup of coffee to a credit card and ending up paying for it for the next five years.