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RISMEDIA, July 23, 2011— ATTENTION STUDENTS! Apply for our credit card and get free food, pizza, t-shirts, water bottles and backpacks. Sound familiar? Not anymore. A recent Sallie Mae survey found 84% of undergraduates own at least one credit card in which they rack up an average of $1,571 in spending per month! Shockingly, 82% of those students fail to make their credit card payment each month. With the new rules laid out in the Credit Card Act of 2009, however, the enticements to apply and qualify for credit cards have changed.

According to Debbie Dragon from the CreditorWeb, the Credit Card Act was created to protect the consumer and keep credit card companies in check. However, some critics say it actually could cost consumers more in the long run. The new law has prompted the return of annual fees and ended or restricted many reward programs. Dragon also says it has become substantially harder for consumers to get approved for new credit cards. Young adults have some new rules to contend with too. In order to qualify for a credit card, anyone under the age of 21 will need a qualified co-signer and must show proof that they have enough income to pay a monthly payment.

Young adults may need new strategies to fund school-related necessities. They do, however, have a few options.

Student loans. Students and their families may need to factor additional school expenses into their student loans—expenses that historically were managed through credit cards. However, handling expenses this way can mean greater debt and less healthy credit records for young adults who are trying to get on their feet.

Secure credit card. A secure credit card typically requires a deposit of funds between $300-$500. That money is put aside as a collateral deposit and the student is granted a line of credit for the same amount. If the cardholder defaults, the deposited funds are used. This allows a student to build their credit profile and some cards will allow them to convert to a regular unsecured credit card after a period of time.

Credit cards and co-signers. A parent can co-sign for their child allowing the student to immediately gain access to a traditional credit card and build a credit history. However, if the student defaults on a payment, the co-signer will be responsible. Since payment statements usually are sent to the cardholder, a parent co-signer often finds out too late that bills have not been paid. The co-signer is legally bound to pay the bill and in some cases may be affected by a derogatory rating on their credit report.

Debit cards. A debit card is similar to a secure credit card in that it uses the student’s checking or savings account for collateral as purchases are drawn off the account. The drawback is that most debit cards do not report to a credit bureau and will not help a student build their credit profile. Inquire at your bank to see if they report activity upon request.

Authorized user. Like a co-signer, a parent can add their children to their own existing credit card account, making the children authorized users of the parent’s account. An extra credit card is simply added to the parent’s account in the student’s name. In some cases, the authorized user may be able to build credit as an authorized user of another account. Such an arrangement allows parents to keep tabs on cards associated with their accounts and quickly cancel authorized user rights if cards are found to be misused or in default. Normally, if handled in a timely manner, such transgressions can be righted before they affect the primary accountholder’s credit.

Teaching young adults how to effectively manage their money is an essential step in helping them learn to survive in today’s economic climate. By not falling prey to the temptations associated with credit cards and encouraging good financial practices, we can help the next generations enjoy strong financial wellness.

Jeff Mandel is president and Marlin Brandt is COO of ApprovalGUARD.

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