Should You Cosign A Student Credit Card for Your Child?
Sending a child off to college presents a lot of financial challenges for many parents, including how best to handle funding his or her education, emergencies (and there will be emergencies…count on it), and other unplanned expenses when your child is away at college.
One way to handle the need for emergency access to funds, be it car repairs, unexpected book/lab fees, or something completely unexpected is to send your child off with his or her first credit card. Of course, with the recent changes in credit card law, your signature as cosigner is now required for that first credit card…the question is, should you cosign?
As parents, one of the most important financial lessons that you can teach your college student is the importance of building and maintaining a good credit rating. And, enabling your child to build and maintain a credit rating through the responsible use of credit will undoubtedly work to his or her benefit once the college days are over, and he or she enters the job market, buys that first car, rents an apartment, or buys a home.
However, before you sign on the dotted line, there are a few things that you want to make sure that your college student understands about credit and credit cards:
Your Role as Cosigner – Make absolutely certain that your child understands that as a cosigner on his (her) account, his actions will affect not only his credit rating but yours, as well. Therefore, if he’s late on his payment, or fails to make the payments, you are not only responsible but your credit rating will suffer. (Many parents, in this instance, insist on having access to the student’s online account so that the credit card balance and payment history can be monitored.)
Cost of Using Credit Cards – Sit down with your student, and compare the terms and conditions of any cards that you are considering before signing a card agreement. The interest rate that he (she) will pay on outstanding balances is the most costly term to consider, and obviously, the lower the APR, the better.
Establish Ground Rules – Make sure that you establish some ground rules with your student for the responsible use of the card. For example, will the card be strictly for emergency use, or discretionary? Will he (she) need to pay the balance off in full on a monthly basis, or if not, what’s an acceptable balance to carry? What should he (she) be expected to pay on a monthly basis towards any carried balance?
All of these items should be covered, and agreed upon, before you cosign on your college student’s first credit card…and if your child has demonstrated a lack of sound financial judgement in the past, additional ground rules may be necessary, or you may decide to wait until your child gains a more practical understanding of his (her) finances before cosigning. The choice as a parent is yours.