Should You Cosign a Credit Card for Your College Student?

Don't make the wrong decision for your child.

The Credit Card Accountability Responsibility and Disclosure Act (CARD Act) is a federal law that makes it harder for college students to get a credit card. Under the law, students and others under 21 need a cosigner to get a credit card unless they can demonstrate they have sufficient income to repay credit card debt.

As a result, many young people find themselves unable to get a credit card unless someone over 21 agrees to share legal responsibility. If you're the parent of a college student, chances are you are the person who would help your child get approved for credit.

But should you be that person? Is it a good idea to cosign for a card? Here are some things to think about when you decide.

Cosigning for a credit card: pros and cons

There are advantages and disadvantages to cosigning to help your college student get access to credit. One of the biggest benefits is that getting a credit card in college can help your child build credit. You need a history of successful borrowing to earn a good credit score. And the longer your positive track record of using credit and paying it back on time, the higher your score.

If you cosign and your son or daughter gets a credit card, pays the balance in full each month, and keeps the credit-utilization ratio low, they begin working toward a high credit score immediately. Upon graduation, your child may already have a great credit history, which opens the door to borrowing for a car or getting approved easily for an apartment.

Credit cards can also mean your child earns rewards and can spend money more conveniently with a reduced risk of financial loss (through, for example, losing a wallet with cash in it). And you can keep tabs on what they spend if you have access to the card statement or online account.

On the other hand, cosigning means you share legal responsibility for any debt your child incurs. And if your cosigning gives your child access to credit when they aren't yet ready, they could end up going deeply into debt or missing payments, messing up their own and your credit scores.

If you trust your child to use credit to improve their finances, there's nothing wrong with cosigning -- although you may want to set some rules and have access to statements. But if you believe there's a risk of disaster, you and your child could come to regret your decision to cosign for a credit card.