Should you cosign your kid's credit card?

Is your child asking you to cosign on a credit card? Read this before you agree. 

Getting access to a first credit card can be difficult for many young people, thanks in part to consumer protection laws such as the Credit CARD Act that prohibits giving a credit card to consumers under 21 without a cosigner or proof of sufficient income. 

Because of the challenges in getting a first card, it's common for parents to be asked to cosign for their offspring. If your kids come to you and ask you to cosign on a card, saying yes may seem like the right thing to do – but it actually isn't always a good idea. Cosigning can expose parents to significant risk and may not even teach the right lessons in the end.

What alternatives are there to you cosigning for a card?

Cosigning may be the easiest way for your son or daughter to get a credit card, but chances are that it's not the only way. Your child will probably be able to get a secured card on his or her own even if you don't cosign. 

If this is a possibility, it can be a better approach because your child will have to put money on the line to get a secured card. The cash deposit your son or daughter makes will act as collateral, eliminating the risk to the creditor and enabling easy approval. Your child has some skin in the game and is forced to save up if he or she wants the card badly enough – and you don't put your credit at risk. 

How responsible is your son or daughter with money?

If your child has always been super responsible with money, saving his or her allowance and never overspending, the risk in cosigning is far lower for you. In fact, you may decide to help your child get a card as a reward for this track record of financial responsibility.

But if your offspring constantly begs for money or asks for allowance advances, chances are good he or she isn’t ready for credit. You could be setting both you and your child up for disaster if you cosign and your kid gets into debt he or she can't afford to pay back. 

What are the benefits to cosigning?

When you cosign, your child may be able to get a rewards card or a better card than he or she could qualify for independently. This could make it possible for your child to get rewarded for everyday spending, while many secured cards offer minimal or no rewards and often charge high fees.

Your willingness to cosign could mean your child can start to build credit earlier. A longer credit history can be a big boost to a credit score and your child can start establishing a positive payment record, which is the most important component of a credit score. 

You may decide it's worth cosigning to provide your child with these advantages – especially if your offspring has a track record of financial responsibility. 

Do you fully understand the risks?

You also need to consider the downsides. If your child doesn't pay – or becomes unable to pay because of death or disability – you could get stuck repaying the entire balance due on the card. 

Your credit could be damaged if your child charges too much on the card or starts missing payments. And you could enable your irresponsible son or daughter to damage his or her own credit. 

If your child charges up a card and doesn't pay, not only could this hurt your financial situation, but your relationship could also be damaged by the betrayal. This is often the biggest risk parents face, as your relationship with your kids is much more important than money. 

Don't cosign without careful consideration

Asking yourself these  questions will help you decide if cosigning on a card is the right course of action for you and your kids. Remember that cosigning is a big decision, so don't take it lightly. Take the time to consider the pros and cons – and to talk with your kids – before you make a promise to creditors that may be hard to keep. 

The Motley Fool owns and recommends MasterCard and Visa and recommends American Express. We’re firm believers in the Golden Rule. If we wouldn’t recommend an offer to a close family member, we wouldn’t recommend it on The Ascent either. Our number one goal is helping people find the best offers to improve their finances. That is why editorial opinions are ours alone and have not been previously reviewed, approved or endorsed by included advertisers. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.

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