Getting your first credit card is an exciting milestone in your financial life, and one you may be able to reach while you're still a student. Yet, it might mean that you need a co-signer if you're under 21, if your income is low or if you don't have a long history with credit.
Who can serve as a co-signer for a student credit card?
Anyone can serve as your credit card co-signer. According to the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009, a parent, legal guardian, spouse, or any other individual can serve as your credit card co-signer.
- The co-signer must be over the age of 21, and
- The co-signer must have a means to repay debts incurred by the cardholder in connection with the account.
Chase and some other credit card issuers will not permit co-signers for credit cards. Issuers that do permit co-signers will also have their own requirements for a co-signer, and it's likely one of them is that co-signers have a good credit score.
When a co-signer is not an option, adding yourself as an authorized user to a cardholder's existing account or earning a secured credit card are alternative ways to enjoy the flexibility of a credit card while building your credit history.
What are the co-signer rules on student credit cards?
The CARD Act imposed restrictions on marketing and issuing credit cards to young people in the US.
One of its key provisions requires new card applicants under the age of 21 to either
- demonstrate sufficient income to repay their credit-card debt or
- find a co-signer with sufficient income.
That means that you'll need a co-signer if you are under 21 and your monthly income is less than the credit limit on the credit card.
If a co-signer is not an option, you can also apply to become an authorized user on another cardholder's account or you can apply for a secured credit card.
How long does a co-signer need to be tied to your account?
While there is no standard minimum or maximum period for a co-signer to be tied to your account, removing a co-signer from a credit card can be a lengthy process to prove that you are capable of managing your line of credit alone. The card issuer will want assurance that you, as the primary account holder, can pay off any debt incurred on the card.
It's possible to have a co-signer removed if:
- You can currently show enough regular earned income to cover your monthly payments.
- Your credit history is now long enough to demonstrate that you are a responsible debt user.
- Your credit score is high enough to prove that you are capable of managing your money.
The best way to learn more about removing a co-signer is to speak to your card issuer, who will be able to give you guidance specific to your financial situation.
What should you keep in mind when using a co-signer to sign up for a student credit card?
Agree on a plan
The co-signer needs to have a lot of trust in you, because they're legally on the hook for any debt on the credit card that you don't pay. It helps to have a discussion up-front with your co-signer on how much credit you can use each month and who makes the monthly payments.
Follow best practices for credit card management
Submit payments on time, aim to pay your statements in full every month and keep your total debt at a reasonable level to ensure that your credit history and credit score improve.
Are there alternatives to getting a co-signer on a student credit card?
There are alternatives to getting a student credit card with a co-signer, namely:
- Being added as an authorized user to someone else's credit card
- Applying for a secured credit card
Become an authorized user on an existing card
When you get added as an authorized user to an existing credit card, you will be sent a credit card with your name that you can use like it's your own. While payments are the responsibility of the card's account owner, you can also contribute payments to the card's account as an authorized user. The card's entire usage (both by you and by the account owner) will be reported to your personal credit history, so take care to regularly review your activity with the to ensure that on-time monthly payments are being made.
Advantages to being added as an authorized user:
- Age restrictions may be lower. Some banks allow authorized users with no minimum age. For most cards, the minimum age to become an authorized user is less than 18.
- Your responsibility is less than if you take out your own card. Only the primary cardholder is responsible for making the payments on the card. As an authorized user, you are not legally responsible for paying the card debt.
- You may be able to build your credit history. Credit reporting agencies may look at your history as an authorized user, which could positively impact your credit report.
Disadvantages to being added as an authorized user:
- Your credit history may not be impacted. It's important to check with the card issuer to see if your history as an authorized user is reported to the credit reporting agencies. If it is not, being an authorized card user will not help build your credit.
- The primary cardholder's behavior can hurt your credit. If your payment history as an authorized user is added to your credit history, the primary cardholder's failure to make on-time payments can negatively impact your credit.
Signing up for a secured credit card
Secured credit cards are low-credit-limit cards designed expressly to help consumers build their credit.
Advantages to secured credit cards:
- You can build your credit relatively quickly. As you use the card and make payments, your positive payment history gets reported to the credit reporting agencies and added to your credit report. Those positive payments landing on your credit report can help you improve your credit history.
- Approval may be easier: even for people with no credit or poor credit. These cards are designed for people who want to improve their credit. The limits are deliberately kept low to encourage responsible use.
- Terms can be more attractive than with ordinary (unsecured) credit cards. You may pay less in interest or fees with secured credit cards, which use your deposited funds as collateral.
Disadvantages to a secured credit card:
- You will need to put down a deposit. Secured cards, unlike ordinary credit cards, require a deposit for you to sign up.
- Credit limits are low. Your credit limit will be no greater than your deposit amount. This is by design: to keep your spending in check and help you build your credit over time.
- You rewards will be limited. Secured cards are designed strictly for credit-building purposes. While there are some secured cards that offer reward programs, most don't include cash back, miles or any other significant perks.