NEW YORK (MainStreet) — New grads may be itching to take control of their finances, but adding a credit card to the mix isn’t quite what it used to be.
Thanks to the 2009 Credit Card Accountability, Responsibility, and Disclosure(CARD) Act, credit card companies are prohibited from issuing credit to anyone under 21 unless the applicant has a stable source of income or a co-signer. And as lenders stay reluctant to lend to anyone with little to no credit history, their rules are making it harder for students to secure a line of credit after graduating.
“Markets are loosening up a bit,” says Beverly Harzog, a credit card expert with Credit.com,“ but it’s still hard for those with limited credit to get approved for a credit card.”
That said, graduates do have three basic options when it comes to applying for credit. First, they can ask a co-signer to help them obtain a prime line of credit, or they can get a secured credit card on their own, which minimizes the risk of default by requiring that applicants make a down payment upfront that will match the card’s line of credit.
Grads can also check their local credit unions, which according to Tim Chen, CEO of the credit card ranking site NerdWallet.com, will be more inclined to extend low lines of credit to those without a credit history on file.
Bruce McClary, media relations coordinator for ClearPoint Credit Counseling Solutions, suggests all first-time credit applicants consider the following:
- Interest rates or Annual Percentage Rates. The average annual interest rate for cardholders is 14.1%, but according to Gerri Detweiler, also of Credit.com, they typically range from 11.24% to 19.8%, depending on the issuer. First-time cardholders tend to end up with a credit line that carries a high interest rate, so comparison shopping before committing to a card can pay off.
- Annual fees. Many secured cards carry annual, maintenance and user fees since the creditor is taking on a “high-risk” consumer. But you can avoid this by reading through the terms and conditions carefully to make sure the card you’re after isn’t loaded with fees.
- Your ability to build credit. Verify your new credit card is being reported to all three of the major credit bureaus (Experian, Equifax and TransUnion) before signing up for it. Major banks and well-known creditors are guaranteed to do this, but many subprime lenders won’t, McClary says. If a cardholder’s info isn’t provided to these bureaus, then the cardholder won’t establish a history, which is pointless. “You’d be better off not even having the card,” McClary adds.