Under 21? Getting a credit card just got tougher

WASHINGTON (CNNMoney.com) -- Antoine Perretta, a 21-year-old University of Denver student, regularly pays off his three credit cards, to build up his credit score. He's working toward getting an affordable loan to buy a car, a used black Audi.

Sarah Bush got her first credit card at 20 and and has "regretted it ever since." A student at Belmont University in Nashville, Tenn., she is now 24 and enrolled in a debt management program, which has helped her whittle credit card debt down to $7,500.

For better or worse, new laws that take effect on Monday are poised to curb the proliferation of credit cards on college campuses, making it tougher for Perretta, Bush and other students to get credit cards.

Last May, Congress decided to crack down on credit card companies and passed a law ushering in sweeping changes for the industry. The laws make it harder for card issuers to raise interest rates unless a cardholder is at least two months late on a bill.

But some of the biggest changes will hit those under 21, who will find it tougher to get a credit card without jumping through new hoops.

No longer will students be able to step up to a table on campus and walk away with a teddy bear, T-shirt and credit card, at least not without a parent's signature or proof of solid income or other assets.

Consumer advocates say the new laws are a good change that will prevent students from starting new careers overloaded with debt.

The average student credit card balance was $3,173 in 2008, up from $1,879 a decade earlier, according to a 2009 survey by student loan issuer Sallie Mae.

But many college students worry that the new laws will make it tougher for them to get credit cards, period.

With the country still struggling under tough economic conditions, more students are using credit cards to pay for tuition, books, commutes and room and board, the Sallie Mae report showed.

"It's my safety line," said Zachary Allen, 19, a business administration sophomore at Saint Leo University in Saint Leo, Fla. "I use my credit card for everything, from gas to my books to food and clothes."

Allen has a good summer job working on the back of a garbage truck in Long Island, N.Y., that earns him $15,000 a year. But he can't convince his bank to raise his credit limit above $700, and he's been denied for other new cards.

"We're at record high unemployment for our age group and the government is spending billions of dollars a month, but they're not helping students," Allen said. "Why isn't Congress helping us instead putting more constraints and pressure on us?"

The biggest new obstacle for those under 21 will be getting a co-signer, which can be a parent or any adult willing to put his own credit score on the line.

If those under 21 can't get a co-signer, then they need to show they have the financial ability to pay off a credit card. Banks will determine that threshold.

Gone will be the stuffed bears, T-shirts, backpacks and water bottles that used to clutter credit card application tables on campuses, because the law also prohibits such tangible "inducements" to tempt students.

The law will continue to allow those under 21 to apply online for credit cards, but they still have to meet the tougher new requirements, according to Federal Reserve rules and banks.

Consumer advocates herald the rules and say they will stem the tide of newly graduated students over-burdened by credit card debt they weren't quite ready for.

"I think it's going to keep a lot of students from getting into trouble," said Irene Leech, an associate professor in consumer studies at Virginia Tech University. "I hope it means we'll have more responsible lending and parents don't get surprised that a young person has taken out this debt."

The law comes too late for Gloria McDonald of Crestline, Ohio, who was surprised to discover her daughter, a student at Ohio University at Athens, Ohio, had maxed out five credit cards, racking up $8,000 of debt at a 23.99% interest rate. McDonald had to borrow against her life insurance policy to pay down the debt.

"I cannot believe that these card companies were allowed to take such advantage of college kids," McDonald said. "How could they possibly issue cards with high credit limits to kids with no visible means of support."

It's unclear whether or not the new law will prevent students from getting access to credit, generally, even if they meet the new mandates.

Banks have already pulled back from issuing as many cards to the student market, in the same way that they're pulling back from lots of areas they now consider risky.

"We're in a transition period, so it's hard to predict," said American Bankers Association spokesman Peter Garuccio. "But it'll be tougher for some folks to get credit cards. That may include young adults."

But some states already have even stronger laws already in place. For example, in New York, all colleges must prohibit any on-campus marketing of credit cards to students. Texas allows such marketing in "designated areas," but requires credit cards that do market on campus to also provide financial literacy programs.

A free backpack and water bottle drew Rosa Nunez who, at 18, was given a credit card with a $8,500 limit, as she walked past the front entrance of LaGuardia Community College in New York.

It was a learning experience. At one point, she took a vacation she couldn't really afford that made it difficult for her to buy books when she returned. Nine years later, she's grateful for access to credit cards, which allowed her to build up a good credit score and buy a house in Queens at 27.

"I do agree there should be new standards in place. Freshman shouldn't get credit limits of $5,000, it should be appropriate to their income," said Nunez who is finishing her marketing degree this year at Baruch College in New York. "However, I don't agree that it should be so difficult for them to get credit at all."