College Credit Card Crunch

No more free T-shirts, pizza and the like. Beginning in February, college students who apply for credit cards will need proof of income.
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What do you remember the most about your college orientation? Was it stopping by one of those folding tables and signing up for your first credit card with a free T-shirt thrown in? This yearly ritual at many campuses is about to become a thing of the past, to be filed away with other bits of nostalgia from college experiences of a bygone era.

Beginning in February, credit card issuers will be prohibited by law from giving away freebies on campus to attract students to sign up. Yes, that means no more T-shirts, pizza and the like. Beginning in February, college students who apply for credit cards will need proof of income, the ability to repay the loan, and if under the age of 21, must get a co-signer, meaning a parent or other responsible party.

"I really expect issuers to ramp it up," says Ismat Sarah Mangla of Money Magazine. The financial writer is talking about efforts to sign up college students before the new rules take effect. "There are options parents really need to discuss with their kids before they drop them off at school," she adds.

What are those options? If your college student is already an authorized user on your card you may just want to keep it that way. Sure, if they hit you with a big blast of spending you're on the hook. On the other hand, you're in a position to monitor, counsel, control or cut them off. If you want to initiate them in the handling of a credit card, try a debit card first. It looks and feels the same. Transactions are similar in that they're swiped and authorized, but they won't be able to spend money that's not in their account.

If they already have a debit card you may want them to add a credit card, but one that's secured. You pay the limit up front and then charge against it. These cards don't always report to the three credit services so your student may not be able to build a credit history with one. On the other hand, he or she will use them the same as they would an unsecured card and hopefully develop good habits.

Of course, if you feel your college age young adult is really ready for the leap and manage a real credit card responsibly, then it may be time to apply for plastic in his or her name. They will need to do this before the rules change goes into effect February 22. If you choose to go this route, know that there are some new protections and resulting pitfalls for cardholders.

Consumers must now be given 45 days warning of changes to their credit card accounts. Issuers must allow 21 days for payment before assessing any late fees. If fees and interest rates are going up, the user has the right to cancel the account and pay off the balance under the old, lower rates. However, they will no longer be able to use the card to make purchases.

As good as these consumer protections sound, don't expect the banks to take this lying down. You may see lower spending limits and higher annual fees. After all, the credit card industry is expecting an 82-million dollar loss because of the recession-based decline in spending.
Talk about all of these things with your college student and let them know a credit card, like a driver's license, is a privilege and one easily lost.

(if you want to read more of my stories or watch my GossipGram with Bonnie Fuller go to nbcnewyork.com)

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