By John Ulzheimer
In 2009, the Credit Card Accountability, Responsibility, and Disclosure Act became law. This Act often referred to as the CARD Act, restricted credit access to consumers who are under 21 or don’t have the capacity to make payments on credit obligations. The hypothesis made sense: people who didn’t have the ability to pay their bills shouldn’t be able to get into debt. The downside to the Act, however, is it made capable people wait an additional three years in order to start establishing a credit history and credit score, assuming those people wanted to get started when they turned 18 years old.
One of the hardest hit groups is students who want to get a credit card while in college but can’t because of the restrictions. And while they can easily obligate themselves to tens of thousands of dollars of student loan debt, college kids have to get creative in order to establish a credit history and a credit score using a credit card, for example.
The Authorized User Strategy
A common method for a student to establish and build a credit history and jump-start their credit scores is to ask a loved one (e.g., a parent) to add them as an authorized user on an existing credit card. Essentially being an authorized user is like having a credit card with training wheels. You have full charging capabilities, but you don’t get the bill and you’re not liable for the debt associated with the credit card.
The reason the authorized user strategy is such a good option when it comes to building a credit score is that almost all credit card issuers will report the activity of the credit card to the authorized user’s credit reports. As long as the card is used responsibly and paid on time, it will help to establish a credit history and a solid credit score. Plus, if you no longer want to be an authorized user, you can request that your name is removed from the account with no problem.
The Co-Signer Strategy
One of the provisions in the aforementioned CARD Act allows consumers who are under 21 years old to open a new credit card if they have a co-signer. If you can find someone to co-sign your credit card application then you’ll likely be able to open a new general use credit card (e.g., a Visa, MasterCard, Discover, or American Express). The purpose of opening a card with a co-signer is exactly the same as opening a card on your own, which is to get a positive, well-managed credit card on your credit reports.
If you manage the card properly by paying it on time and maintaining a low balance, then it will help your credit scores. The only downside to the co-signer strategy is both parties (i.e., you and your co-signer) are equally liable for the debt whether or not you were the one who made the purchases. And, there is no easy way to have your name or your cosigner’s name removed from the account simply because one of you no longer wants to be associated with it.
Disclaimer: The views and opinions expressed in this article are those of the author, John Ulzheimer, and do not necessarily reflect the official policy or position of VantageScore Solutions, LLC.