The Credit CARD Act makes it harder for students under 21 to get credit cards. Thus, a 21-year-old student wants to charge his classmates to have him co-sign on a credit card. Our expert explains why this is a really bad idea
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Dear Opening Credits,
I know that the new credit card law means that any student under 21 at my college will need a co-signer to get a credit card. I’m over 21, and I’ve been talking to some of these underclassmen who are dying to get a card, but don’t want their parents to know about it. So my question is: How much should I charge to be a co-signer for them? I think this could be a sweet business. — Seth
Oh, boy, I get the impression that you aren’t majoring in ethics. Altruistic? I think not. Then again, I’m not even sure your area of study is business, due to the inherent financial and practical flaws of this scheme of yours. Here are the three major problems of this idea:
1. The relationship issue. The Credit CARD Act does indeed make it considerably more difficult for those under 21 to get a credit card in their name only. However, it can be accomplished with a co-signer who is willing to guarantee the account with joint ownership. Who should that person be? A trusted, trusting individual. You see, if you were to make arrangements with virtual strangers, they could just as easily ruin your credit as you can theirs and not give a hoot about it. After all, they paid the fee, what do they care about you and your future? As a co-signer, you are equally responsible for the debt accrued on the card. For this reason, it makes the most sense to have a close association in these types of credit arrangements.
2. The credit report issue. While it can sound sensible and lucrative for you to co-sign on a steady stream of accounts for a price, I’m afraid that the credit card companies would soon tire of your guaranteeing any Tom, Jane and Jo. Sure, you can co-sign on an account for someone you don’t know, but your good name will soon wear thin. Open more than a few accounts, and you’ll be overextended, which will make your credit score take a nosedive. At that point, your business will not only dry up, but you’ll also have some extensive credit damage of your own to repair.
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3. The lying issue. Come on, Seth! Do you really want to help other college kids be deceitful and lie to their parents? I can’t think of a better way to describe this plan than “morally yucky.” We’re long past the “greed is good,” bend-the-rules mentality of the fabulous (if campy) ’80s movie “Wall Street.” Instead, borrowing a title from another classic movie of that era, all Americans need to “do the right thing” when it comes to money and credit. Integrity is really the best approach. It feels good, and it is good.
Another point to consider is that all of your potential customers have another way to obtain a card in their own name without having to turn to a mercenary co-signer. How? Get a job. You see, the other stipulation of the CARD Act is that if 18- to 21-year-olds have a regular income source, they don’t need anyone else to guarantee the account. The credit issuer will determine if the applicant has the means to handle a credit card, and can grant it based on that information. In fact, I believe this is the best method anyway because it sets the stage for financial and credit history independence.
Therefore, the answer to your question of how much to charge for your pay-for-plastic service is zero. Don’t get me wrong, though. I support the idea of capitalizing on a need and developing a business around it in a creative way, but this venture gets an F. Keep thinking. I’m sure you’ll come up with another — more ethical and realistic — way to make money.