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Co-signing Credit Card Applications May Not Be A Good Move For Parents

By Faye Mergel
Published: Monday, March 8th, 2010

It seems that parenting just gained a new headache. Come February 22, the credit industry is going to change considerably as this new credit card legislation finally activates. After months of waiting, consumers will finally see the new credit legislation of the government in action.

Co-signing Credit Card Applications May Not Be A Good Move For ParentsOne of the major issues that this new credit legislation, dubbed the Credit CARD Act of 2009, tackles is the problem of student credit card debt. Student card debt has been on the rise in the past few years. This is primarily because not a lot of students are financially smart enough to handle using a credit card, which isn’t surprising considering the number of older card holders who have the same problem. The fact that credit card companies love to market credit cards to susceptible students does not help either.

This new legislation will put a stop to the ability of card companies to market cards directly to students. This means that card marketing in-campus will no longer be allowed. Credit card companies will also no longer be able to offer trinkets and other “gifts” to students who sign up for cards.

The most worrying change for parents is the law that prevents credit card companies from issuing a card to a student unless he or she has a co-signer. This provision in the law is aimed at ensuring that a student can pay his or her card bills if he or she is to get one. While a student can also present proof that they have the right income to support credit card payments, it is very likely that the majority of students who will be getting cards after February 22 are going through the co-signer route, probably with parents providing the necessary signature.

What is worrying for the parent is that, once they co-sign a credit card for their son or daughter, they are completely, 100% liable for any debts that their child incurs. They do not even have to know just how much the debt is or where it was spent on, says Kim McGrigg from Money Management International, Denver.

That is sure to be a worrying thought for any parent. Financial counselors, however, have a bit of good news for parents. Instead of getting children a regular credit card, a better idea would be to give them a secured credit card. A secured credit card works like a credit card, but carries a pre-set limit. Parents can also make children authorized users of their credit accounts. This allows them to monitor their children’s spending and cut their credit before things get out of hand.

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