Sure, I acknowledge this may seem like a pretty silly question. After all, why in the world would you send your 18-year-old off to school with the massive buying power associated with a credit card? I mean, certainly it’s better for them to not learn how to use plastic properly and, instead, carry around a bunch of cash or a prepaid debit card that charges fees so they can use their own money. (Is this where I insert a #sarcasm hashtag?)
Many parents like the idea of their college student having access to a credit card for necessities or in case an emergency arises. Others would like to help their children build strong credit, and wisely see credit cards as a tool that may help accomplish that goal. Here are some of the hurdles you’ll encounter in your search for the right credit card for your college student.
Credit Card Age Limitations
Unfortunately, just because you decide that you do indeed want to help your child get a credit card account, that doesn’t mean doing so will be an easy process. In 2009, Congress passed the Credit Card Accountability, Responsibility, and Disclosure Act (aka the CARD Act). Provisions imposed under this statute led to a number of changes within the world of credit card lending, especially with regard to young people.
Because of the CARD Act, many people under the age of 21 are unable to open a credit card account. The law says card issuers may not open a new account for consumers under the age of 21 unless they have a job or a co-signer. Many college kids have neither.
So unless your college student has a job, you will most likely have to choose between two options if you want to send your kid back to school with a credit card. Option No. 1 involves co-signing. Option No. 2 involves adding your child to your existing credit card account as an authorized user.
Option No. 1: Co-Signing
Although co-signing for your child’s credit card account is an option the law and many credit card issuers may allow, that does not necessarily mean doing so is in your best interest.
Co-signing for your child’s credit card is extremely risky, because that new account will not only show up on your child’s credit reports, it will almost certainly show up on your credit reports as well. You may not want that, because the decision to co-sign for someone else’s credit card account can harm your credit scores.
First, if your child makes late payments or defaults on the account, then your personal credit could take a severe beating. Even if your child is responsible with his or her credit card payments, the account could still have a negative impact on your credit scores in other ways, especially if an outstanding balance gets too close to the credit limit. As such, the authorized user option may be a better idea for everyone.
Option No. 2: Authorized User
A less risky method of supplying your child with a credit card is the authorized user option. When you add your child as an authorized user to an existing credit card account, you can generally help him or her to establish credit without putting your own credit health in danger. Plus, if your child begins to charge more than they should in a given month, you always have the option to cut them off. An authorized user has spending permissions, but none of the liability for payment.
Keep in mind, you should probably only add your child to a credit card account with perfect payment history and preferably a low or zero balance. Otherwise, you could be hurting your child’s credit instead of helping it.
Additionally, you will be liable for any charges your child makes on the account, so discussing spending limits ahead of time is a wise idea.
- The Best Credit Cards for College Students
- Four Reasons to Add Your Teen as an Authorized Credit Card User
- How to Graduate from a Big-Name College for a Fraction of the Cost
John Ulzheimer is an expert on credit reporting, credit scoring, and identity theft. He has written four books on the topic and has been interviewed and quoted thousands of times over the past 10 years. With time spent at Equifax and FICO, Ulzheimer is the only credit expert who actually comes from the credit industry. He has been an expert witness in over 230 credit related lawsuits and has been qualified to testify in both federal and state courts on the topic of consumer credit.