Credit Cards

Thinking of co-signing a credit card for your child? ask these questions first

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You don’t want to make a decision you’ll regret.

Key points

  • Many young people need a co-signer to obtain a credit card.
  • Parents are often asked to cosign.
  • Making the decision to co-sign could result in financial damage to the parents.

Thanks to a law called the CARD Act, it’s hard for young people to get a credit card unless they have solid proof of income, or a co-signer. As a result, it is common for their children, including college students, to ask parents to co-sign a credit card.

If you are one of the many parents whose children apply for this type of financial assistance, there are three key questions to ask yourself before moving forward.

1. How will your child use the credit card?

The first big question to consider is how your child will use the credit card. When you co-sign with the card, you are responsible for each and every purchase made with it. If your child runs up a $1,000 balance and doesn’t pay it off, the creditor could come after you and try to collect the money from you directly.

If your child wants to use the card to make just one small purchase a month in order to establish a positive payment history and build credit, then you really don’t have much to lose by signing up as a guarantor. At most, you would be hooked by the small sum they charge each month, so the risk to you is minimal.

However, if your child wants to use it to cover routine expenses, spring break trips, college costs, or other major expenses, they may end up worsening their financial situation if they go overboard, and they can manage their own money. . try harder if you get stuck with the bill.

2. Do you trust your child to be responsible?

While your child may have the best of intentions when it comes to the credit card they’re asking them to sign for, you’ll want to be 100% sure they’ll use it responsibly.

If they don’t, and end up with a lot of debt or even just pay their bill late, they could end up hurting their own credit and yours too. The last thing you want is to cosign only to find out that your child severely damaged their credit while in school and is now struggling to get a car loan or mortgage after graduation, not to mention the challenges you might personally face with the loan. if your credit takes a hit too.

3. How badly would your finances be affected?

Finally, you should think about the impact co-signing could have on your credit history.

You’ll end up with an inquiry on your credit report by co-signing the card, which is enough on its own to cause a temporary impact on your credit score, since too many inquiries are considered negative.

If your child uses more than 30% of the available credit on the card, it can also lower their score. And late payments or default can be devastating. She likely wants to have good credit as she nears retirement, and she doesn’t want to jeopardize her own situation if she has to pay off the card or if her credit score plummets due to irresponsible borrowing behavior.

By asking yourself each of these questions, you can make the decision that is right for you about co-signing, and hopefully neither you nor your child will regret the decision you made.

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