4 Pros & Cons to Cosigning Your Kid’s Credit Card

4 Pros & Cons to Cosigning Your Kid’s Credit Card
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Stefanie O'Connell
By: Stefanie O'Connell
Posted: May 22, 2014
Experts share their tips and advice daily on BadCredit.org, helping subprime consumers navigate the world of personal finance.

Credit cards are wonderful tools when used properly. In the wrong hands, however, they can be quite destructive, plunging consumers into mountains of high interest debt.

Cosigning a credit card for your child may be a good way to teach them the value and importance of credit while they’re still young and under your supervision.

On the other hand, you may be putting yourself at risk by putting your name on their credit line. Either way, cosigning will be an excellent learning opportunity for everyone involved.

PROS

1. You can teach responsible credit virtues

You can teach responsible credit virtuesIf you give your child a credit card while they’re still under your roof and supervision, you can instill good credit values at a young age.

Be specific about what the card is for and when your child will be held accountable for their purchases.

Be sure to review the monthly bill together — it’s an opportunity to discuss purchase behavior, the importance of good credit and the implications of missing a payment or only paying the minimum.

2. You can monitor their spending

You can monitor their spendingWhen you cosign a credit card for your child, you can see all transactions in your monthly statement.

If you see a pattern of unnecessary or excessive spending, you can recognize the problem and address it without too much harm done.

It’s better if your child makes mistakes under your watch. Minor lessons become a cautionary tale before they turn into major credit dependency problems.

If your child has a series of payment lapses, hold him or her accountable for the interest and penalty charges.

CONS

1. You put your own credit at risk

You put your own credit at riskWhile cosigning a credit card allows you to monitor your child’s spending, it also holds you liable for all debt incurred.

If your child racks up enormous debt and fails to make payments, it’s your credit that’s on the line.

Keep track of what they’re doing.

2. You’ll need a contingency plan

You'll need a contingency plan

In the case of rogue credit card use, you’ll have to bail out your child’s charges to save your own credit from plummeting.

That contingency means setting aside more emergency savings in the event your child’s spending gets out of control.

Be sure to save at least twice your child’s credit line in case he or she gets a little spend-happy and incurs those nasty overage fees.

Some experts recommend starting children out with a debit card instead or adding them as an authorized user on your credit account rather than cosigning.

Authorized users are easily removed from credit accounts, so take necessary action if you start to see massive bills and remove irresponsible credit users before they damage your credit.

Regardless of whether you give your child access to a credit card, it’s always a good idea to have a discussion on the importance and implications of credit and responsible spending habits.

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