Under the new financial reform, customers with ages under 21 are no longer allowed to have their own credit cards until they can illustrate that they are financial independent or until they can get a parent to co-sign and take the responsibility for payment if the young holder defaults.
Young people specifically students are expected to graduate without any bad credit left behind. When students finish their schooling, their credit history is often used by potential employers to evaluate their job candidacy and qualifications. So with students with bad credit they still need more time to improve their credit history.
Credit card companies offer students a couple of card options for them to start with. First one is the prepaid card. Prepaid cards aren’t actually debts. These are reloadable cards that are already money. It’s like putting your money in a plastic card and using them to purchase items and pay for your bills. They usually work like debit cards and can be used to make purchases.
Second type of card that may be used by no credit report history and bad credit history students is the secured credit card. Unlike the prepaid credit card, this type of card is the same with the standard credit card. Students can charge their purchases to their secured cards and will later on pay the bills. However, since secured cards are solely for consumers with high risk credit profile, the interest rates are high. Furthermore, students have to come up with a security deposit that will be put into an account and will be applied to defaulted payments in the future.
If the student wanted to build a credit history out of this type of card, he or she must be sure that the credit card issuer reports to the three major credit bureaus — Experian, Trans Union and Equifax. Future lenders and future employers would usually run a credit report background on their future customers and employees from the bureaus. The credit bureaus usually approached by these credit report users are the three main ones. So even if the payment was reported to a credit bureau other than the three, there might be a chance that the users won’t know about the on-time payments, thus lessening the probability of getting approved. Through this, the student will have to talk to their credit company and tell them to report the entry to the reports under the main bureaus.