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Student Credit Cards: What to Do Before You Cosign for Your Kid

by Barbara Marquand

Under new credit card reform rules that came about from the Credit Card Act, college students under 21 won't be able to get credit cards unless they have a cosigner or can show they have sufficient independent income to qualify.

So should you cosign for your kid's credit card?

The Case for Student Credit Cards

Young people need to start building credit histories so they can rent apartments or qualify for good rates on car loans. Even employers sometimes check credit reports to gauge applicants' sense of personal responsibility. Credit cards also provide convenience and a financial safety net in case of emergencies.

Credit Card Tips for Cosigners

The downside of cosigning is you could get stuck with the bill, and your credit score could take a hit if your student misses payments. Follow these tips before you cosign:

• If your kids have years before they go away to college, start talking to them now about how credit works, and help them develop good money management skills.

• Your own credit history is at stake when you cosign, so think about how you want your student to use the card and then discuss your expectations with your son or daughter.

Credit Cards 101

• Make sure your student understands the importance of paying off credit card debt in a reasonable amount of time, and explain the pitfalls of paying only the minimum due each month. Minimum payments are usually just a few percentage points of the balance, plus interest. Use credit card calculators to show how long it takes to pay off a card when paying small amounts each month.

• Explain the importance of paying on time. Missing a payment carries more consequences than a late fee. The card issuer could raise the interest rate or cancel the card, and late payments hurt credit scores--the student's and yours.

Compare Credit Card Deals

• Shop online for the best credit card deals. Work with your student to compare credit card rates, credit card terms, and credit card rewards and find the best card for both of you.

• Consider a secured credit card or a prepaid credit card if you don't think your student is ready for a conventional credit card. A secured credit card is backed by a deposit in the bank, and the credit limit is based on the deposit. Prepaid credit cards carry fees, so do consider the cost of these before getting one.

Published 01/31/11 (Modified 07/09/14)

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