Mom, Can You Co-Sign My Credit Card?

Last Updated Sep 1, 2010 5:01 PM EDT

By Labor Day most college kids are settled into their dorm rooms and their parents have grudgingly gone home. But there's one thing Mom and Dad may have forgotten to take care of before they left campus: co-signing for Junior's credit card.

Thanks to the Credit CARD act of 2009, no one under the age of 21 can open a credit card account unless an adult co-signs the application or the applicant can prove he can pay the bills on his own. Don't feel badly if you didn't know about this new law. According to a recent survey by myFico.com, some 47% of parents with college age kids had no idea their participation was now required.

If you're not sure you want to help your child out, you're not alone. Some 34% of parents don't think their kids are ready for a credit card and 16% are worried that if they co-sign they will get stuck paying the bill. They know that if they don't pick up the tab, they risk damaging their own credit scores.

While I understand these concerns, here's another way to look at this issue.

By helping your college kid secure a credit card you can teach him how to use plastic properly and help your son or daughter start to build a solid credit history. If there aren't too many missteps along the way, he or she should have a decent credit score by the time graduation roles around and then you won't have to co-sign for another Visa or AmEx card again.

So what's the best way to help Junior secure a credit card and build up his credit score? Craig Watts, a spokesman for FICO, the company that computes FICO credit scores, walked me through three options parents may want to consider.

Co-Sign
As I discussed above, the only way your 18-year-old can sign up for his own credit card is if you co-sign the account.

What you need to know: If you choose this option, make sure you explain to your child that the statements will get mailed to him and that he must make his payments by the card's due date. The good news is that doing something as simple as mailing in a check on time is one of the best ways to boost and maintain one's credit score, says Watts.

Joint Account
Another option is to open a new credit card account for yourself and add your child as a joint user.

What you need to know: The upside here is that you never need to worry about your child paying the bill since the statements go directly to you. Even better, your child will also get to share your long and hopefully positive credit history, which will boost her credit score.

What's the downside? Your daughter won't actually learn how to manage the credit card since she won't be paying the bills.

Authorized User
Adding your child as an authorized user on your credit card looks and feels a lot like naming your kid as a joint holder. The main difference is simply who the bank thinks controls the card. (That's you.) Some credit card companies, including American Express, also charge fees for adding additional card holders.

What you need to know: If boosting your child's credit score is the objective here -- as I think it should be -- then this is my least favorite option. That's because authorized card holders don't benefit quite as much from sharing your credit history as a joint user would, says Watts.

What would I do? Once my daughter starts college, I plan to help her secure two cards. I would co-sign for one account and let her learn to manage it on her own. I would also add her as a joint user on another card so she can fully share my credit history and get a jump start on building her own credit. I would just ask her to only use the Visa card we jointly share for purchases I would normally cover, including text books and other school supplies.

What do you plan to do for your child?

Stacey Bradford is the author of The Wall Street Journal. Financial Guidebook for New Parents.
Photo courtesy of Flickr, CC 2.0.
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