Monday, August 3, 2009

Would you co-sign a credit card for a child?

Calling all moms or anyone who has ever considered....


Co-signing for a child's credit card

Far too many parents do this. It may or may not hurt their credit score. However, it does hurt their child if the proper money topics aren't discussed before giving the child a credit card. A credit card is a priviledge and shouldn't be taken lightly.

I truly am against co-signing in general, no matter what the age of the child, because this is exactly what my parents did for me when I was 16 years old. It didn't help me out and it actually hurt me even more. A more responsible approach would have been to teach me about money and personal responsibility.

Over this past weekend (August 2, 2009) in the Business section of the Washington Post there was an article and after reading it I just said, "AMEN, at the top of my lungs." Thank you Janet Bodnar for writing, "The Dangers of Co-Signing for a Kid's Credit Card" from Kiplinger's Personal Finance. Here is the article:

Come February, people under the age of 21 will have to provide proof of income to get a credit card or have a parent or someone over 21 co-sign their application.


The idea, of course, is to make it tougher for young people to get credit. But that solution raises another big question: Should you sign for your child's credit card?


For years in this column I've advised that you not mix your credit record with your child's. I haven't changed my opinion.


As long as teens have Mom or Dad to fall back on, they're unlikely to take full responsibility for using using a credit card. If they screw up, your good credit record is on the line.


A checking account with a debit card is a great first step toward learning how to manage credit. I'm well aware that debit cards aren't the perfect solution. But teens can get into far less trouble paying a $30 overdraft fee than running up a credit card balance of hundreds of dollars or more.


And if they first learn how to balance a checking account and avoid overdraft fees, they can be better trusted to pay their credit card bill on time.


There's no need to rush teens into becoming debtors-in-training. They have enough trouble juggling schoolwork, extracurricular activities and jobs without keeping tabs on credit card bills.


You don't owe your children your credit rating. I'd rather have them apply for a card independently after they've proven that they have the maturity and experience to handle it. Even if they have to pay a higher interest rate initially, they'll learn that credit is a privilege, not an entitlement.


I think some great take home points from this article are:


  • A checking account is a great first step
  • No need to rush teens into becoming debtors-in-training (I was a total debtor-in-traing in my teens and early 20s)

  • Credit is a privilege, not an entitlement

I would love to hear your thoughts on this topic. Leave a comment.

Best wishes,


Janie

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