MMI offers tips for understanding the CARD Act

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By Catherine Holland By Catherine Holland

While only 10 percent of respondents in a recent Money Management International (MMI) Back to School survey believe students should use credit cards to finance college costs, many students get their first credit card while they are in college. In fact, 84 percent of undergraduates have at least one credit card, according to a 2009 Sallie Mae study of how undergraduate students use credit cards. Beginning Feb.22, 2010, college students will find it much harder to get credit as the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) goes into effect.

The CARD Act establishes new provisions for extending credit to underage consumers:

• Consumers under the age of 21 must have a cosigner or an independent means of repaying the debt (such as a job). Before the cardholder reaches age 21, the cosigner is required to approve any increase in the credit limit in writing.

• Unsolicited, prescreened credit card offers to consumers under age 21 are banned by the CARD Act.

• Credit card companies are no longer allowed to give away promotional items on or near college campuses or at college sponsored events. With permission from universities, credit card companies may still set up tables on campus, but may no longer give away freebies (t-shirts, hats, blankets, etc.) to entice students to sign up for credit cards.

The CARD Act takes measures to protect underage consumers, especially the undergraduate crowd. “Credit card companies were often on campus offering free merchandise to students when they complete an application for credit,” recalls Renee McGruder, Communications Coordinator for MMI and a recent graduate of Houston Baptist University.” Many students, particularly freshman, would be excited about free merchandise and not have a clue about the long-term implications of applying for and using credit.”

MMI recommends the following tips to college students and their parents on the responsible use of credit.

Think before you cosign. Cosigning carries many risks because the primary borrower’s mistakes will end up on both signers’ credit reports. If you want to help your child build credit, first set some ground rules and discuss the responsible use of credit before you sign.

Students should take a lesson in personal finance. Many colleges are now offering classes in personal finance. These classes can be applied in the real world when it comes to making smart decisions about retirement, savings, and credit.

Check your credit report. Whether your credit is well established or you are just starting out, regularly ensuring your credit report is accurate and error-free is smart. Request your free credit report at