Traditionally, student credit cards have lower credit limits and set interest rates. When compared to standard personal credit cards, you will find that credit card rates for students are a little lower on average. However, credit card companies can still charge fees, penalty interest rates and even close student credit card accounts at will.
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According to Forbes, there are no rules that prevent credit card issuers from charging students the same rates as older borrowers. Credit card companies cannot extend credit to students under 21 years of age, but they can issue cards to students and co-borrowers.
Many student credit cards come with lower rates so that issuers can attract more applicants. Students applying for credit usually understand the importance of managing debt, but they also have no practical experience.
Regulation of Student Credit Cards
Individual credit card companies have their own rules when it comes to student credit cards, but the government has the final say. US News reports that credit card companies have had to change their marketing strategies in order to comply with new credit card rules. These rules don’t change the way that cards are issued, but it does prevent issuers from partnering directly with college administrators.
Today, students have to be able to show that they are capable of paying monthly credit card bills in order to be approved without a co-applicant. While this is helping, some students aged 21 and under from going into debt, many parents and guardians have now been saddled with additional debts.
Credit card companies can sue students that default on their credit cards, garnish their wages, take their tax returns, and negatively impact their credit scores. These are the same actions that credit card issuers can take with all cardholders.
Getting a Credit Card if you are Under 18
Student credit cards are usually marketed to young adults that have just turned 18 and are enrolled in a college. Credit cards for minors are available, but these have a very different set of rules. In some cases, minors that have been emancipated can be approved for a personal credit card, but this rarely occurs.
Minors are usually added onto their parents’ credit card accounts as authorized users rather than applying for credit on their own. They can build their credit ratings, but they also run the risk of being penalized if their parents’ fall behind on their payments. If you are interested in finding a credit card for minors, you might want to start considering local credit unions.
Some credit unions have credit cards for young adults and few, if any, qualifying criteria.
What Happens if Students Don’t Pay Their Credit Card Bills
The main reason that laws have changed for student credit cards is that a large percentage of cardholders were going into massive debt. Students have to worry about paying their college tuition, and while credit cards can be helpful in emergencies, many were relying on them too heavily.
As a result, students and politicians started to complain. The 2009 Credit Card Act helped to put a stop to some abusive practices, but students are still responsible for repaying their credit card debts. While it takes several months before a student credit card can cause a consumer major problems, there are plenty of negative consequences that can occur.
At a minimum, credit card companies charge off student credit cards when they become delinquent. Default APR rates may apply, and the interest can continue to compound. Any debt collection tactic allowable by law can be used to get students to repay their credit card bills.
Now that most students apply for credit cards with their co-signers, the ramifications of delinquent credit card debts can be even more severe. Students, for the most part, may be more willing to deal with bad credit ratings because they are just starting their lives and do not understand the consequences of their actions. Older co-borrowers looking to buy a house or finance a car may have different goals in mind.
In the end, many co-borrowers are forced to pay back student credit cards, whether they made the debts or not. Credit card companies benefit because they have a guarantee of payment and students benefit from having intact credit histories. Students that apply for credit cards on their own and get approved do not have this luxury.
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