Just about every teen dreams of getting a credit card as soon as they turn 18. For many young adults, credit is a rite of passage into adulthood. But getting a credit card isn't as easy as it used to be.
There was a time when an 18-year-old college student with very little income could apply for a student credit card and get approved with no problem. It was easy credit, and student accounts gave young adults the opportunity to build credit at an early age. But for many, a credit card was too much too soon. The Credit Card Act of 2009 put an end to easy credit. Nowadays, anyone under 21 must provide proof of verifiable income to get a credit card or have a cosigner. For that matter, if your student can't get a credit card on his own, you play a huge part in whether he receives a credit line. This brings up the question: Is your teen ready for a student credit card?
No one can answer this question for you. On one hand, you might like the idea of your teen having an emergency credit card, especially if he attends school hours from home. But on the other hand, you know how young adults can make poor financial decisions.
To cosign or not to cosign? That is the question. Here are three factors to help you make the right decision for your student.
Does Your Teen Have a Job?
Cosigning for a student credit card doesn't mean you have to pay your child's monthly charges. This is your teen's credit card, so he should make the minimum payments. Therefore, it only makes sense for your teen to have an income source like a part-time job. If your teen doesn't have a job, or if he can't hold a job, he's not ready for a credit card.
Is Your Student Responsible with Money?
At the end of the day, only put a student credit card in your teen's hand if he or she is responsible with money and a savvy shopper. If he had difficulty managing his money or personal bills like a cellphone while living under your roof, there's a good chance he won't make the best financial decisions while living away from home. Teens have to understand the fundamentals of money management (budgeting, saving, paying bills) before taking on the responsibility of managing a credit card. Be realistic about his money habits. Besides, as cosigner you're just as liable for the balance. So if your teen defaults, you're next in line to make the payments.
Does Your Teen Know About Credit Management?
Your teen might work and have basic money management skills, but how are his credit management skills?
Sit down with your teen and make sure he understands everything there's to know about credit. Too often, young people obtain credit cards but they don't understand the repercussions of late payments, nor do they understand the consequences of maxing out a credit card. Some people learn good credit management by trial and error and only after making a bunch of mistakes, but you can help your child avoid credit blunders. If you don't know much about credit yourself, this is the perfect time to educate yourself so you can pass this knowledge to your offspring.