Thanks to the CARD Act of 2009, obtaining a credit card is tougher for young Americans than it’s ever been before. This, of course, is by design: prior to this legislation, many young adults were getting into serious trouble with credit card debt, so the act has been successful in limiting teens’ access to plastic.
Although consumer advocates are cheering at the strict terms of the CARD Act, the fact remains that building a good credit history relies heavily on obtaining a credit card as early as possible and using it responsibly. With adults in the 18-21 year-old age group largely unable to get credit cards on their own, many are turning to their parents to co-sign their first cards. But should you do it? Maybe, but it’s important to have all the facts first. Check out the information below to help you make this important decision.
What It Means To Co-Sign
Co-signing any loan, including credit cards, essentially serves as an added layer of protection for the bank issuing it. People who require co-signers have been deemed by the bank as not creditworthy enough to obtain a loan without another person taking on the responsibility of paying the obligation if the primary borrower isn’t able to. This means that, if you co-sign your child’s first credit card, you will be obligated to make payments on the card if your child doesn’t. If you fail to make those payments, your credit will suffer.
Is Co-Signing a Bad Idea?
Being on the hook for someone else’s bills might seem like a scary prospect, but it’s not always a bad idea. If your child has a strong track record of responsible behavior – especially when it comes to money – co-signing a credit card will give her a head start in her financial life. She’ll have an opportunity to begin building credit before most of her peers and will have access to a source of funds in the event of an emergency. Many teens are perfectly capable of behaving in level-headed ways with credit, particularly if their parents have set a good example, so don’t dismiss the idea out-of-hand.
Protecting Yourself If You Choose To Co-Sign
If you decide to move forward with co-signing your child’s first credit card, there are some important steps you should take to be sure you don’t end up in financial and familial trouble:
- Have an honest conversation with your child about the importance of using credit responsibly and the consequences that arise from being reckless with credit.
- Be sure that your child fully understands how credit cards function and how important it is to be careful with credit before you agree to co-sign.
- Set up online banking for the card you’ve co-signed and monitor your child’s spending carefully, at least for the first six months to a year.
- Set limits – make it clear to your child that if he abuses the card you’ve co-signed, it will be canceled.
Deciding whether or not to co-sign a credit card for your child is a tough one, so use the information above to figure out what’s right for you and your family. Remember, there’s no shame in saying ‘no’ if you need to!