On May 22nd, President Obama signed the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 into law.  The CARD Act will change the way credit card companies do business, and it will also prohibit consumers who are under 21 years of age from getting credit cards without proof of their ability to repay their debt, or a co-signer in the form of a parent or legal guardian.  This latter point makes it foreseeable that secured credit cards will become the preferred cards for college students, the majority of whom are under 21.

With a secured credit card, undergraduates can open their accounts by putting down a security deposit, which is equal to their credit limit.  For example, if a student wanted a credit limit of $500, they would put up a $500 security deposit to cover their debt in case they became unable to pay their bill.  The presence of a deposit fulfills the letter of the new law by providing ample proof that the consumer in question will be able to repay their debt.  Thus college students will be able to receive secure credit cards without need of a parent or guardian as a cosigner.  If the consumer defaults, the credit card company simply takes the security deposit. Other than this security deposit, a secured credit card acts just like a regular credit card.

Despite the new law, secured credit cards are optimal for college students who are just starting out their credit histories.  When you establish credit there are two main factors that will shape your credit report:  the timeliness of your payments and your discipline in terms of not overspending.  Both of these things can be hard to learn for those new to credit.  College students can practice sound financial habits with a secured credit card at very low risk to both themselves and their credit card company.  Once they have managed to pay for their secured credit card on time for a couple of years, then they can switch to an unsecured line of credit and challenge themselves to not spend more than they should.