It used to be easy for a young adult to get a credit card. Often, they simply had to fill out the forms credit card companies mailed them once they turned 18. But new legislation has made it more difficult for people under the age of 21 to get a card, and has also changed the ways cards can be marketed to young people.
According to a new report in the Contra Costa (California) Times, there are now four ways for a young person to get a credit card, all of them aimed to protect people under 21 from taking on too much debt. A young person will now have to have an adult co-sign on the card for them, become an authorized user on an existing card, get a secured credit card, or make enough money to have their own.
If a young person has an adult co-sign on a new card, they do so with the risk that the co-signer will assume the debt if the teen cannot pay their bills, the article said. This is somewhat similar to the situation created if they become an authorized user on an existing card. While they are not legally responsible for making the payments, there is nothing to prevent them from paying part of the bill.
For the other two options, both of which involve a young adult getting a card of their own, the article says that getting a secured card could be the wiser choice. The credit on such cards is tied to a pre-existing amount of money in a bank account, and can help build a credit score, but may come with high fees. These cards are designed for people without a credit history to slowly start building one.
The final method is for a young adult to get their own card if they have "sufficient income," but this is the riskiest way to go because there is nothing protecting the person from debt.
A recent study in the Journal of Consumer Affairs found financial literacy among this demographic is rather low. It said that less than one-third of young adults possess even basic knowledge of routine financial concepts like interest rates, inflation and risk diversification, and much of that was based on what it called "sociodemographic characteristics and family financial sophistication."