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With the new credit card rules, many parents of college students may breathe a sigh of relief. Firstly, credit card issuers can no longer push credit cards on college campuses as aggressively as before. Secondly, kids under 21 are required to have a co-signer when applying for a credit card, unless they have sufficient income.
At the same time, however, the new rules leave parents of college kids, who don’t have an income, with a difficult question: Should they co-sign a student credit card for their kid? On the one hand, most parents want to help their college-bound kid get the convenience that plastic affords. On the other hand, co-signing mixes family relationships and money, which is often a formula for trouble.
In short, if you consider co-signing a student credit card, carefully consider the pros and cons. The pros of helping college-age kids get a student credit card include:
- The comfort of knowing that your child always has a source of extra funds, should the need arise;
- Getting a student credit card will help your college kid begin to build a solid credit history early on, with all the advantages that that can bring down the road;
- Co-signing a student credit card gives parents an opportunity to talk to their child about financial management and even help educate their child about the proper use of credit.
While the idea of helping a college-age child develop basic financial literacy skills by co-signing a credit card will appeal to many parents, watch out for the following cons:
- Parents who co-sign a credit card application will be on the hook for the charges, should the credit cardholder cease to pay the bills. When co-signing a student credit card with a $300 credit limit, this may not seem like a big deal. However, five to ten years from now, after multiple credit limit increases, it could be a problem. Life takes different twists and turns, and as your child gradually creates a life of his own, their financial difficulties down the road, could become yours.
- If the credit card debt isn’t paid, then the negative payment history goes on your credit report too.
- As a co-signer it may not be so easy to keep an eye on the account balance and payment history on the credit card. If you consider co-signing, ask the credit card issuer if you can receive statements on the account as well.
- Getting out of being co-signer on a credit card isn’t always easy, particularly if there is a balance on the account. Closing the credit card would be the simplest way, but that might disadvantage your child’s credit history, something most parents will be reluctant to do. Ask the credit card issuer for their policies on exiting co-signing agreements, and try to have an exit strategy in place once your kid graduates from college. If that turns out to be difficult, you may want to reconsider.
In short, co-signing a student credit card is fraught with risk. Parents wanting to help out their college-bound child might instead consider alternatives, such a making your kid an authorized user on your credit card, or helping them get a charge card. For more information, see this article on Best Alternatives to Student Credit Cards.
