What to know about being a credit card guarantor for your child.
A credit card can be an important step on the path to financial independence for young adults, especially college students preparing for the responsibilities of adulthood. It's a convenient way to make purchases, and it can also help build a credit history. However, individuals under age 21 may be required to have an adult as a guarantor to qualify for a credit card. Before deciding to become a guarantor for a credit card account, though, make sure you understand the responsibilities.
As a guarantor, you're agreeing to pay the balance if the borrower is unable to make payments, and missed payments can damage your credit score, too. You must be at least 21 years old to be a guarantor for a credit card account and have established good credit.
If you decide to move forward, be sure to ask credit card issuers the following questions before you choose a card:
Alternatives to being a guarantor for a credit card account
- Your child can apply for a secured card.
With a secured card, your son or daughter deposits money in a security deposit account as collateral for the credit line. This option is subject to credit criteria, so your child will have to apply and be approved prior to obtaining a card. Just make sure the issuer reports to all three credit bureaus to ensure that the secured card is helping your child build a credit history. Also check whether the issuer offers an option to convert to a regular (unsecured) card after a certain period of timely payments. If you're comparing cards, keep in mind that a secured card is different than a pre-paid card. A prepaid card works very much like a debit card in that the money you deposit is used to pay for your purchases. The money you deposit for a secured card is simply collateral and doesn't count towards payments. With a prepaid card your payment information is generally not reported to the three credit bureaus and so it may not be the best solution to help build a credit history or improve a credit score.
- You can make your child an “authorized user” of your own credit card.
In this case, your child gets charging privileges but you're responsible for the payment. Just make sure you monitor your child’s spending and have the option of removing charging privileges. Keep in mind that this approach won’t help your child build a credit history since you have sole responsibility for the payment.
- Your child can use a debit card instead.
Debit cards won’t help your child build a credit history, but they offer much of the convenience of a credit card without the temptation to spend more than you have.
If you do opt to become a guarantor for a credit card account, it’s up to you to make sure the account is managed responsibly. Take some time to help your child understand the importance of using credit wisely and building his or her own credit history. For more tips on how to build credit and keep it healthy, check out the Building Credit video from Better Money Habits™ or browse our Student banking resources.