College Students Can Still Build Credit History

Article excerpt

Some aspects of college life never change. Late-night study sessions. Uninspired cafeteria food. No place to park, ever.

But next year, a familiar site on many campuses will disappear: the tables strategically placed in high-traffic areas, offering free iPods, T-shirts and other goodies to students who sign up for a credit card.

Legislation signed into law in May will prohibit credit card companies from offering gifts to college students who agree to fill out a credit card application. The legislation prohibits lenders from issuing credit cards to individuals younger than 21 unless they can prove they can afford payments or get a parent or other older individual to co-sign.

Consumer advocates say these reforms are long overdue. The provisions, however, don't take effect until February. In the meantime, credit card companies can continue to market their cards, and some advocates worry that this year's campaigns will be more aggressive than ever.

"We're calling it the last open season on credit for college students," says Gail Hillebrand, attorney at Consumers Union.

Having a credit card can help a student build a good credit history, making it easier to qualify for a car loan or other types of credit after graduation. But the reverse can happen if the student runs up charges he or she can't afford to pay, Hillebrand says.

"Building credit is a good idea, but a credit mistake stays on your credit report for seven years, and those seven years can really hurt you," she says.

So how can a college student build a credit history without getting into trouble? One alternative is to become an authorized user on a parent's credit card, says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling. A student who is an authorized user can use her parent's credit card, and her use of the card is reported to the credit bureaus in her name.

Adding a child as an authorized user allows parents to keep track of the child's credit card spending, Cunningham says. If the student isn't abiding by the rules, the parent can remove him as an authorized user, she says. That gives parents a level of control they wouldn't have if the child had the card in his own name, she says.

Keep in mind, though, that the cardholder -- not the authorized user -- is legally responsible for the credit card debt. …