Should you co-sign on your child’s credit card?

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Your child asks you to co-sign on a credit card? Read this before agreeing.

Your child asks you to co-sign on a credit card? Read this before agreeing.

Access a first credit card can be difficult for many young people, in part thanks to consumer protection laws such as the Credit Card Act which prohibits giving a credit card to consumers under the age of 21 without a co-signer or proof of sufficient income.

Due to the difficulties encountered in obtaining a first card, it is common for parents to be invited to co-sign for their offspring. And if your kids come to you and ask you to co-sign a card, saying yes might sound like the right thing to do, but it’s not always a good idea. Co-signing can put parents at significant risk and may not even teach the right lessons in the end.

When you co-sign, you share full legal responsibility for the debt incurred by your son or daughter. Before you accept this, ask yourself these key questions.

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What alternatives are there for you to co-sign a card?

Co-signing may be the easiest way for your son or daughter to get a credit card, but chances are it won’t be the only way. Your child will probably be able to get a secure card alone even if you do not co-sign.

If this is a possibility, it may be a better approach as your child will need to put money online to get a secure card. The cash deposit made by your son or daughter will act as collateral, eliminating risk to the creditor and allowing for easy approval. Your kid has skin in the game and is compelled to save if he wants the card enough – and you’re not putting your credit at risk.

How responsible is your son or daughter for the money?

If your child has always been very responsible with the money, saving their allowance and never spending too much, the risk of co-signing is much lower for you. In fact, you may decide to help your child get a card as a reward for their history of financial responsibility.

But if your offspring is constantly begging for money or asking for cash advances, chances are they are not ready for credit. You and your child could be prepared for disaster if you co-sign and your child goes into debt that they cannot afford to repay.

What are the advantages of co-signing?

When you co-sign, your child may be able to get a rewards card or a better card than he or she could independently claim. This could allow your child to be rewarded for their daily expenses, while many secure cards offer little or no rewards and often charge high fees.

Your willingness to co-sign could also mean that your child can start building their credit sooner. A longer credit history can be a big boost to a credit score and your child can begin to build a positive payment record, which is the most important part of a credit score.

You may decide that it is worth co-signing to provide your child with these benefits, especially if your offspring has a proven track record of financial responsibility.

Do you fully understand the risks?

However, you should also consider the downsides. If your child does not pay – or becomes unable to pay due to death or disability – you may be required to repay the entire balance owing on the card.

Your credit could also be damaged if your child overloads the card or starts to miss payments. And you could allow your irresponsible son or daughter to harm their own credit if you help them get a card before they’re ready.

If your child loads a card and doesn’t pay, not only could it hurt your financial situation, but your relationship could also be damaged by the betrayal. This is often the biggest risk parents face because your relationship with your kids is so much more important than money.

Don’t co-sign without careful consideration

Asking yourself these key questions will help you decide whether co-signing on a card is actually the right course of action for you and your children. Remember, co-signing is an important decision, so don’t take it lightly. Take the time to consider the pros and cons – and speak with your children – before making a promise to creditors that can be difficult to keep.

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