While putting a credit card in the hands of a high school or college student might seem like a risky proposition — especially if they don’t have a basic understanding of financial and credit management — doing so wisely can set them up for a sound financial future. Credit cards are great tools for teaching financial responsibility and building credit.
The Credit CARD Act of 2009 stipulates that credit card applicants under the age of 21 prove sufficient independent income or have a cosigner in order to open a credit card account. Since few teenagers and early twentysomethings are financially independent, they often rely on parents, guardians, or even older friends to help them secure a credit card.
As a parent, you have few options for helping your children establish a credit history with a credit card: co-sign their application, authorize them as a user on your credit card account, or help them get them a secured card backed by a cash deposit. All options leave you financially responsible in different ways.
Are you prepared to risk your credit?
Co-signing your child’s credit applications means leaving your credit report exposed to their credit behavior. Any late or missed payments will appear on your credit report. If your child is away at college and you can’t follow their payment history, you may not even know there’s a problem until you’re turned down for a new card or for a loan.
You also put your finances at risk by co-signing your child’s credit card application. In the event of delinquency, you could be liable for payment until the debt is satisfied. This worst-case scenario leaves you exposed to lawsuits, wage garnishment, and asset seizure. If it gets to that point, credit repair could help rectify or mitigate the effects of negative credit events.
Consider the credit alternatives
Instead co-signing a credit card application for your child, consider adding them as an authorized user on your account. This strategy allows you to keep track of their spending. Of course, adding an authorized user means you’re still responsible for making payments on the account, so you’d need to work out a payment process for any charges incurred by other users.
Alternatively, you could get your child a secured card. These no-frills, low-limit cards require a cash deposit to secure the card. These credit cards have low barriers to entry and are a great way for children to start their credit history. Citi, Capital One, and Discover all offer secured card options.
If you’ve left yourself exposed to your children’s less-than-stellar credit habits, or simply don’t want to burden them with your own poor credit history, consider credit repair services. Working with credit repair professionals can help you take control of your credit and put you on a path toward a better credit score. The attorneys at Lexington Law understand consumer protection laws and legal rights. They can work with you to ensure your credit reports remain fair and accurate.
Contact us for a credit repair consultation, including a complete review of your credit report summary and score. You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.