Some New York parents choose to allow their kids to get credit cards while those children are still relatively young. Whether they hope to help their kids build good credit histories or want to teach them about effective money management, many parents have to co-sign on their kids’ accounts in order for credit cards to be secured in their kids’ names. These arrangements can work but for some people mistakes made by youths lead to serious money problems for their parents.
If a child defaults on a financial obligation on which a parent has co-signed, that parent can be liable to the creditor for the entire amount of the obligation. While credit cards often have charging limits that cap the limit to which a person can become indebted, obligations such as mortgages can have significantly higher risks. Any parent who co-signs on a financial obligation of a child should be fully cognizant of how any debts will be pursued in the event of default.
Even parents who do not allow their kids to get their own credit cards can run into problems when they allow their kids to use their charging devices. In some situations a parent will give a child the parent’s card with instructions to the child for what the card may be used to purchase. Not all children follow the rules of their parents and as a result some parents find that their kids run up high bills on their parents’ credit accounts.
Many parents help their kids get credit cards to help the kids learn to manage their daily expenses. However, not all kids are prepared for the responsibilities of credit management and find themselves maxing out their cards and incurring heavy interest penalties. For individuals who need help alleviating the credit card debt accumulated by their kids, bankruptcy and other legal options may be available.
Source: MarketWatch, “5 ways your kid can hurt your credit,” Geri DetWeiler, Oct. 11, 2014