Co-signing your kid's credit is great, unless it endangers yours

It helps students establish credit, but set ground rules first

Opening Credits columnist Eric Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for

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Question for the expert

Dear Opening Credits,
My daughter Amy wants a credit card in her name, but can't get one because she is too young. She is 18. She has a good job and is also in college. Do you think I should add her to my accounts? I have perfect credit that I worked very hard for over these past 20 years. Any advice is appreciated. God bless. -- Karyn

Answer for the expert

Dear Karyn,
You are in an awkward position. Like most parents, you want to be kind and generous. It's natural for you to want to help your daughter during her college years. Being reticent to share your credit cards and borrowing history with your daughter is not only normal, however; it's sensible. 

Far too many mothers and fathers guarantee their kids' credit accounts with their signature, then regret that decision. Teens and young adults are often not adequately prepared for the job of managing a credit card, so they run up debt or fail to make timely payments. Then what happens? The credit history of everyone on the account suffers. 

Then again, young Amy is also experiencing a bit of a conundrum. Having and using credit well now will behoove her in the future -- but because she is under the age of 21, she could have trouble obtaining a credit card in just her name. That's because the Credit CARD Act, much of which took effect in February 2010, changed the rules in a big way. To get that precious piece of plastic now, she'll either need the assistance of an adult willing to co-sign on the account or she'll need to prove she has the economic means to repay what she charges.

So, let's begin with helping her out. If Amy has been a responsible person up until this point, your relationship is based on trust and open communication, and she understands how to use a credit card advantageously, I would say yes.

If you agree, know that you have a couple of options: You can co-sign on a new credit card where you are both equally responsible for the account, or you may add her as an authorized user on one that you already have. To start her off, I suggest the latter. As an authorized user, Amy would get a card with her name on it. She'll be able to build a credit history, but you maintain control of the account. If the arrangement doesn't work out, you can give her the boot at any time. This is very different from co-signing on a jointly held card because if you wanted to take her off the account, you'd have to close it and start anew.

Whichever you choose, add conditions for use. Draw up an agreement that spells out who pays the bill, what the card should be used for and what will happen if she messes up. All of these points are for you to make, not her. She may be officially an adult, but you are the parent and are putting your financial reputation on the line. If she agrees to your terms, both of you need to sign it, and -- voila! -- a contract is born. 

This doesn't mean your job is over, though, mom. Monitor her account activity to make sure all is well. It's not spying or intruding; it's being a mindful cardholder. I also recommend you help her with her credit report. When you pull copies of your own reports and scores (a good idea to do annually, to make sure all is as it should be), have her check hers as well. Review them together and discuss what you see. A good FICO score is in the mid 700s on up these days, so have her shoot for the highest numbers. With such good credit, you must be aware that charging regularly, paying on time and keeping balances at zero is the magic formula. Now make sure she knows this, too.

The other way she can get a card of her own is with that income of hers. What she earns may be enough to guarantee the account. However, because Amy is a student, I assume that she is not working full time. You say the job is good, but it could be too temporary or low-paying to meet a credit issuer's standards. 

In the end, I do believe that helping Amy get a card, whether on her own or with your signature, and teaching her to use it correctly is an invaluable gift.  With it, she'll have an established and positive record of using credit wisely when she completes her degree. Plenty of people, from potential employers to landlords, will be analyzing her credit report and scores to determine her level of financial responsibility. If it's positive, she'll have an advantage over countless other graduates.

See related: Help for bad credit, 3 reasons not to co-sign for your college kid's card, Without co-signer, minor's debt is likely off-limits to collectors, Consider these options before co-signing for a cardThe risks you incur when you co-sign, A guide to the Credit CARD Act of 2009

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Updated: 03-18-2019