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Getting a credit card under 21

By Leslie McFadden · Bankrate.com
Thursday, August 26, 2010
Posted: 10 am ET

A small myFICO survey of parents with college-age children reveals that while a whopping 82 percent of parents say they've talked to their kids about the importance of credit, nearly half  are uninformed about a restriction in the Credit CARD Act that makes it harder for adults under the age of 21 to get a credit card. The survey was conducted June 29th through July 6th through opt-in e-mails and myFICO.com and had a total of 619 respondents.

Unaware of the law, many students could be surprised when they apply for a credit card on their own and get turned down.

The law prevents issuers from giving a person between the ages of 18 and 21 a credit card without a co-signer or proof of income. The rule has been in place since Feb. 22, 2010, when the largest set of provisions from the Credit Card Accountability, Responsibility and Disclosure Act took effect.

Your child can opt for a student card or a secured credit card, but the same rules apply -- he or she still needs a co-signer who is over 21 and meets the ability-to-pay requirement, or sufficient income to cover the obligation. In the case of student cards, some credit history may be required. If "fair" credit is needed, for example, that would roughly translate to a FICO score in the 620-659 range, according to myFICO.com.

If your child doesn't have a job, you could co-sign for a credit card, or add your child as an authorized user to one of your accounts. Barry Paperno, the consumer operations manager at myFICO, spoke with me about the pros and cons of each option.

  • Adding an authorized user. Adding your child to your credit card would help him or her establish a credit history. Your child wouldn't be legally responsible for the debt, and you could monitor spending on the card. Some issuers even allow you to set spending limits on secondary cards. Such a spending cap wouldn't show up on the student's credit report, according to Paperno.

Should you miss a payment, a phone call to the card issuer would remedy the damage to your child's credit history. "The student can be removed as an authorized user, either at the student's request or the parent's request, and that can be removed from their credit report and will no longer hurt them," says Paperno. While the account is on the child's credit report, it will be included in calculations of the FICO score.

On the downside, the payment history and card usage would affect the credit score of the parent and child. You would also be legally responsible for charges your child makes.

  • Co-signing with on a credit card. Opening a joint account can be  dangerous for you and your child because you share legal responsibility for any debt incurred. "If it's a high balance and if there's a default on that, the credit card company, and ultimately a collection agency, is going to chase the student as well as the parent for the full balance," says Paperno. If the debt goes unpaid, the student could face further penalties, such as wage garnishment or a judgment on his or her credit report.

You can't simply ask the issuer to remove your child as a joint accountholder, as with authorized users.

For more information about the difference between joint accounts and authorized user accounts, read the Bankrate feature "Sharing credit card accounts."

If you have high school or college-age kids, tell me: Will you help them  get a credit card before they turn 21?

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