Due to a rapidly changing financial environment, it is very difficult to pinpoint specific high school student credit cards with good ratings. However, on many of the Internet-based lists some common names appear regularly within the top five or 10 card issuers. You will see names like Citi mtvU, Discover Student Card, MTV Visa, and Chase +1 Student MasterCard on many of those lists.
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When you’re comparing high school student credit cards bear in mind there’s more to look at than simply their star ratings. A star rating only gives you an overall picture of a given card, but you also have to look at details like annual percentage rates (APR), late fees and other penalties, and who is ultimately responsible for the debt if you don’t pay.
Companies Can Legally Give Credit Cards to High School Students
There may be an obscure law or two at the state level prohibiting companies from issuing credit cards to minors, but there is no federal statute currently in place. Credit card issuers are free to extend credit to anyone they choose. The only legal limits placed on them come by way of collecting on debts. The credit card company cannot forcibly collect from a minor through the legal system. Credit card issuers are free to extend credit to anyone whom they choose.
The legal restraint on collections is what leads most credit card companies issuing cards to high school students to require an adult co-signer. That credit card co-signer is normally a parent or guardian with direct access to the student’s spending.
If the student fails to make his monthly payments, the co-signer immediately becomes legally responsible for them.
According to the Federal Trade Commission, surveys among various types of lenders indicate that nearly 75% of all co-signed credit eventually falls back on the co-signer as a result of the primary signer defaulting. Whether or not this 75% number holds true with high school student credit cards is unclear. However, the fact that debts cannot be legally collected from those under the age of 18 makes high school student credit cards a risk to say the least.
It is Common for High School Students to Carry Credit Cards
Surprisingly enough, more high school students carry credit cards than you might think. A 2008 survey conducted by the Jump$treet Coalition revealed that just over 40% of the respondents use their own card cards regularly. In addition, a little more than 45% use a combination of their own credit cards and those of their parents. Just 50% of respondents said they do not use credit cards of any type. More than 40% of high school students in 2008 had their own credit cards.
Assuming the majority of high school students with cards have their parents as co-signers, that suggests there’s an awful lot of American parents who have taken on the responsibility of unsecured revolving credit on behalf of their children. Many do so in the belief that it will teach their children how to manage the finances. On the other hand, critics warn that doing so encourages high school students to spend irresponsibly.
When a Student Can Apply With No Co-signer
When a high school student turns 18, he is free to apply for a credit card with no co-signer. If that student has not had credit previously, it is unlikely he will be approved. That is where having a student credit card prior to the age of 18 becomes an advantage. That is, of course, as long as the student is faithful and paying his bills on time.
Students who apply for a standard credit card and are turned down can opt for a secured credit card in its place. A secured credit card requires the cardholder to deposit a certain amount of cash with the card issuer as collateral.
If the student fails to pay his monthly balance, the credit card company can deduct it from the amount of the cash deposit.
Credit cards for students can be a good tool to help children learn to manage credit. But they can also be a trap, which puts both student and parent under a heavy load of debt due to irresponsible spending. It goes without saying that such credit cards need to be used with wisdom and discipline.
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