Credit & Debt

Kids Needn't Rush to Get Credit

The first step to using credit responsibly is learning how to manage cash. Once teens and college students master that skill, they can start building a credit history of their own.

When it comes to the issue of whether parents should co-sign a credit card for their teenagers, I come down squarely in the "no" camp. Co-signing a card for your child puts your own credit rating at risk. If your child runs up big balances or misses payments, it could reflect badly on your credit history. And if he or she skips out on the bill, you're responsible.

Parents are under no obligation to give their children credit, or the benefit of their own credit history. But parents do have an obligation to teach children how to manage money so that kids can apply for credit on their own once they're mature enough to manage it.

One lesson kids need to learn, for instance, is how long it takes to get out of debt. Say you put $50 a month toward a $2,000 balance on a credit card that charges 18% interest. It will take 62 months to pay off the balance -- and cost $1,077 in interest. (As an eye-opening exercise, kids can use the calculators at Kiplinger.com to customize numbers.)

Once kids turn 18 and head to college, issuers of major cards, such as Visa and MasterCard, are eager to give students credit because they assume Mom and Dad will bail them out if they get into trouble. Major issuers are less eager to sign up kids if they're not in school or have graduated. But in those cases, there are other ways for young people to establish credit.

They could, for example, start with a retail or department-store credit card, which tend to be easier to get. They can build a credit history in six months to a year by making purchases and paying for them on time, and then reapply for a Visa or MasterCard.

Young people can also apply for a secured card, which requires cardholders to make a savings deposit equal to their credit line (for a list of secured cards, visit www.cardratings.com or www.cardweb.com).

But there's no rush for kids to get credit, because they need to know how to manage cash first. I recommend that college students get a couple of years' experience handling their own expenses with a checking account and a debit card, and then apply for credit.

That way, they'll have a card when they graduate, and you'll have confidence that the bills will be paid.

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