Currently, there are federal laws in place that prevent many young adults from getting credit cards on their own until they turn 21, but some can get around those safeguards, and find themselves in serious debt if they're unprepared.
Data from a study at the University of Alabama shows that many times, college students who obtain credit cards are not knowledgeable about how these kinds of accounts work, and often find themselves in a precarious position, according to a report from the Wall Street Journal. This combination of a lack of financial education and access to credit is what leads many young adults to maxing out their credit cards, and while the Credit Card Accountability, Responsibility and Disclosure Act of 2009 was designed to help prevent those under 21 from getting their own accounts, many are still able to do so.
How they do it
The Credit CARD Act lays out two very specific ways in which college kids, or anyone else between the ages of 18 and 21, can obtain a credit card with their name on it. The first is by having an adult (usually a parent) co-sign on the account with them, which can be common. The second is by proving that they have enough income of their own to show that they can afford the payments that may be associated with such an account.
But what those safeguards don't do is take into account how prepared a student may be to actually use their new credit card on a daily basis, the report said. The recent study found that students with the least credit card knowledge are, unsurprisingly, twice as likely to have an account maxed out, compared with those whose knowledge is only middling. Further, those borrowers are also more likely to take on cash advances, which carry higher interest rates, or fall behind on their payments and become delinquent.
The research shows troubling signs
However, the number of students who have that midlevel knowledge are now also beginning to involve themselves in risky behaviors as well, the report said. Only those students who show themselves to have the highest levels of financial education seem able to avoid these pitfalls.
"Young people who have been made responsible for some of their own expenses learn early about the value of earning, as well as the decision to spend money," Kevin Meehan, a certified financial planner in Itasca, Illinois, told the newspaper. "Education helps, but more often it's experience in the marketplace or with families that will drive how responsibly students use credit through their lifetimes."
But while the study, which quizzed students on basic questions about credit card costs, found that knowledge of this information is helpful, it doesn't directly correlate to avoiding credit card pitfalls. Instead, Cliff Rob, who conducted the study and is now the associate professor of financial planning at Kansas State University, says that these missteps may simply be the result of college students having access to accounts they never did in the past, and not necessarily knowing how to deal with it.
"You see healthy campus initiatives about eating right and alcohol abuse," he told the newspaper. "We talk about grade stress and social stress. But there's rarely a component of financial health and stress. What about the financial stress students are facing right now? What about the stress of coming out of school with $60,000 in debt?"
On top of credit card debt, which can add up quickly for those students unprepared to manage such an account, many college-aged adults are also adding significant amounts of education debt that can make it far more difficult for them to achieve financial independence soon after graduation.
Some studies show that even the average college student can leave school with more than $40,000 in outstanding debts spread across a number of accounts. And because the current job market for young adults is extremely difficult, that can spell many problems for those who have debt obligations and little or no income with which to address them. That can be especially true for those who have private student loans.
If you have a large amount of debt or are experiencing other types of credit-related issues, it may be a good idea to check a copy of your credit report. This may be able to help you discover any unfair markings that may be having a negative effect on your credit score. If you discover such an entry on your record, you could be able to work with a credit repair law firm to repair your credit standing. This may help you to put your standing back in order.