Today at TILE we talked about heading back to school and about the banks that were lurking around the student center last semester. As we mentioned earlier, there are a whole bunch of new rules governing the way banks are allowed to operate, and this includes credit card companies. But how will these new rules impact your ability to get a card? Or the banks’ ability to give you one? Are back-to-school credit card offers a thing of the past? And is it good or bad that credit may be harder to come by for many young adults?
This year, there are new rules – specifically, the Credit CARD Act – which may put an end to banks soliciting you for new business. Card companies are no longer allowed to market credit cards within 1,000 feet of a college campus (kind of like a restraining order), are prohibited from hosting tables at events, and can’t give away “gifts” (you know, size XL t-shirts and teddy bears branded with the bank logo) to entice you to sign up. Maybe most importantly, if you are under 21, you can’t get a card at all unless you have a co-signer.
Does it really matter that it’s now harder for young adults to get a credit card? Some people are suggesting that credit is dangerous in the hands of young adults, and that debit cards are safer and just as effective a learning tool as credit cards. We disagree. Credit itself isn’t dangerous – it’s all about how you use it. And building credit is essential to establishing a financial identity.
Every new life skill requires some kind of training, and learning to use credit is the same. When you start driving, you get a learner’s permit before your license. If you ski, you start on the bunny hill before heading to the double black diamonds. Keeping this in mind, would it have been smarter for the new credit rules to enforce lower credit limits for young people rather than ban their use altogether? Maybe the banks could have been forced to provide credit limits of just $100 for young people until they prove they can handle the new freedom. After all, isn’t learning by doing (rather than withholding) a better way to teach financial responsibility?
What does this mean for the TILE community? Well, if you’re over 21, these new rules won’t affect you much. Of course, those other rules still apply to you – after all, credit can only help you if you pay your bills on time every month. If you’re not yet 21, you will either need to wait until you are “of age” or you’ll need to find someone to co-sign for you (and basically accept responsibility for your behavior). You can talk to your parents about co-signing, but be sure to discuss what happens if you aren’t responsible and leave them stuck with the bill.
We encourage you to start building your financial track record early. When you can demonstrate a history of buying things on credit and paying your bills on time, it builds a track record of success (which builds up and pays off). For example, if your sister borrows your clothes but never returns them, you will probably stop letting her shop your closet. On the other hand, if your clothes consistently come back clean with a big thank you (think of that as interest earned), she can probably be trusted with your favorite sweater. Holding a credit card in good standing gives you grown-up purchasing power and also indicates that you are a responsible person (at least, according to the banks).
Finally, from my own recent experience watching someone buy their first car, holding a debit card and a drivers license alone will not convince lenders that you’re financially ready to drive that new car off the lot. So try to look for ways of building credit despite these new laws; a co-signed card or manageable student loan can go a long way toward building your grown-up financial reputation.
- Amy