WSJ Your Money Briefing - How Students Can Apply for Their Own Credit Card

Episode Date: August 6, 2024

Stricter regulations have tightened the requirements for people under 21 to get a credit card. Wall Street Journal contributor Cheryl Winokur Munk joins host J.R. Whalen to discuss how the process works now. Sign up for the WSJ's free Markets A.M. newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

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See Kraken.com slash legal slash ca dash pru dash disclaimer for info on Kraken's undertaking to register in Canada. Here's your money briefing for Tuesday, August 6th. I'm J.R. Whelan for The Wall Street Journal. Tighter banking laws have made it a lot harder for students to get their own credit card. But there are still ways for young people without credit history or established spending Tighter banking laws have made it a lot harder for students to get their own credit card. But there are still ways for young people without credit history or established spending power to be approved for plastic. You can have a camp job. Even babysitting money, if you have enough of it, can help. You may have to give bank statements and the credit card companies may ask you for a note from your employer in some cases.

The important thing is to have the income on your own that you've earned. Wall Street Journal contributor Cheryl Winokur-Monk has been researching the types of credit cards geared to students and the rules around them. We'll talk with her about it after the break. Wherever you're going, you better believe American Express Checkout. Just need a nice place to settle in? Enjoy your room upgrade. Wherever you go, we'll go together. That's the powerful backing of American Express. Visit amex.ca slash yamx. Benefits vary by card. Terms apply. It's becoming harder for students to get a credit card.

Wall Street Journal contributor Cheryl Winokur-Monk joins me. Cheryl, how does establishing good credit as a student help them in the years to come? Having good credit can help you with so many things. Buying a house, getting better rates when you buy a car, taking out other types of loans, and more. It's really an important underpinning of a healthy financial life. But you're right that it's getting harder for students to get credit cards. For one thing, why don't we see banks setting up tables on college campuses anymore and offering credit card promotions to students? That went on for years. Well, it's actually a simple answer. They're not allowed to. A 2009 federal law clamped down on

banks' ability to hand out that free gear that so many of us remember from our college days. I remember practically being chased with free stuff just to entice me to apply, you know, hats, frisbees, t-shirts, but they just can't do that anymore. So how are credit card companies connecting with students? Honestly, a lot of it is just the students reaching out, realizing it's time to get a credit card. Because I had kids in this age range, I'm on a lot of parent forums, and so many times parents are asking, time to get a credit card for my student, time to get a credit card. Because I had kids in this age range, I'm on a lot of parent forums, and so many times parents are asking, time to get a credit card for my student, time to get a credit card, how do I do it, how do I do it? And that's actually one of the reasons I wrote this story, just because so many of my friends were asking. Last month we discussed students

building a credit profile by being an authorized user on their parents' account. But if a student wants to get a credit card on their own before they turn 21, what kind of information would they typically have to supply? You're going to have to show you have earned income of your own, and that could be income earned on a W-2 or a 1099. Students shouldn't get so hung up on the kinds of jobs. I mean, you can have a camp job. Even babysitting money, if you have enough of it, can help. You may have to give bank statements and the credit card companies may ask you for

a note from your employer in some cases. The important thing is to have the income on your own that you've earned from a full-time job, part-time job, or like I said, even babysitting or odd jobs around the neighborhood. What types of credit cards are usually geared to students? Credit card companies have these cards that are specifically designed for students, and they're often meant for people with very little income, and some are good for those who don't even have a credit history. It's going to depend on the card. Some cards, even though they're for students, want you to have a credit history, and that allows you to put on a certain amount. It's often in the $200 to $500 range for students, and that's the amount you can spend. So if you have a secured card for $200, you can only spend up to $200 per cycle, and that can help prepare you for what's called an unsecured card, which is what you think of when you get a traditional credit card. A newer offering is a debit card that has a credit building ability. It functions just

like a debit card, so you can't overspend, but your spending history gets reported to the major credit bureaus. And those secured credit cards you mentioned, do they typically offer rewards and incentives like other cards might? With a secured card, you may be able to get some perks and rewards such as cash back, though you're probably likely to get more perks if you have an unsecured card. But the secured cards sound like it almost puts up a set of guard rails to keep the student within a certain spending area. Are there any downsides to having that protection that a secured card would provide?

Well, you're not going to have as high a spending limit on a secured card. So for example, if you want to buy books for college using that card, books can run well over the $200 to $500 range if you have a lot of books. I mean, now students aren't buying as many books, but even so, it's a smaller limit than if you had an unsecured card, which you may be able to get $1,000, $2,000, even a $3,500 limit. If a student plans to travel overseas, how would that factor into the kind of credit card that they should get? Well, you're really going to want to make sure you have a card with no foreign transaction fees. Often foreign transaction fees are 3% of every transaction, and that really,

really adds up. There are plenty of cards that are available to young people that don't have foreign transaction fees. You just have to specifically look for that. Now, if you're taking a gap year before you enter college, you may not actually be eligible for a student card. It depends because some of the cards meant for students actually want to show you're enrolled in a university or a community college or something like that. But you can still, if you have income, potentially get a credit card geared for someone in your age bracket, and they also could have no foreign transaction fees. If you're going to spend a year studying abroad, just make sure that the card that you get has no foreign transaction fees. Do the cards geared towards students typically have

annual fees? It really depends on the card company. You're going to want to look at that too. Many of them don't. There are plenty of offerings that don't have an annual fee. What should a student keep in mind if they want to open up more than one card? Don't do it. I know that sounds flip, but it's really easy to get in over your head in debt if you're not careful. So let's say you have a limit of $1,000 on a card. Assuming your parents are paying the big bills like tuition, it's a pretty big limit for a student. And the risk of taking out additional cards is that you view that extra $200, $300, $500,

whatever that limit is, as extra cash, which it's not. So just because you have a certain limit doesn't mean you should be spending up to that limit. And in fact, for credit reporting reasons, you actually don't want to keep spending. You want to keep that spending much lower than the limit you're offered. On the flip side, if a student falls behind making payments, how damaging would that be on their credit profile? Well, it can be really damaging, especially if you don't catch up quickly, and it can really spiral. The other thing to consider is that student cards can have an interest rate in the range of 18% to 30%.

So let's say you max out the card at $1,000. It's not just $1,000 anymore. It's that percentage, and it compounds, and that can quickly balloon. If students think of a credit card as a convenient way to pay instead of cash, but only use it for purchases you know you have the cash to afford, it really can go a long way in helping you develop sound financial habits. That's WSJ contributor Cheryl Windecker-Monk. And that's it for your Money Briefing. This episode was produced by Zoe Kalkin with Deputy Editor Chris Zinsley.

I'm J.R. Whelan for The Wall Street Journal. Thanks for listening.