Capital Investment Advisors

Can I co-sign on secured card to start child’s credit?

Dear Opening Credits,
My daughter is 16 and I’d like to set her up with a secured card so she can build credit. Please recommend the one that would be best that would get her credit history started. I have a score of 850-plus and will co-sign and secure with $200.

– Michele

Dear Michele,

Pretty much any credit card that bears your daughter’s name will help build her credit history. It could be unsecured or secured, and you could co-sign on the account or let her be an authorized user on a card you have. As you probably know, she can’t sign for one by herself because she’s still a minor.

I think you’re on the right track with the secured card idea. These products are perfect for people who haven’t yet had a credit card because all an applicant needs is to offer a cash deposit that will guarantee the credit line, plus enough income to pay for the monthly bills. You have a fantastic credit rating, and although it’s not required for a secured card, it certainly doesn’t hurt.

However, not all credit issuers allow co-signers now. Today, most card issuers require just one person on the contract as an owner, but there are a few holdouts, including Wells Fargo and Bank of America, but those are for unsecured cards. I am not aware of any secured cards that allow co-signers.

If you do know of a secured credit card and are able to add your daughter’s name as a co-signer, fantastic. You would both be on the account and it would start to show up on each of your credit reports. The issuer will report the amount of the credit line, and after either of you begin to charge and repay, the details of your account activity – such as your payment pattern and any unpaid balance that is carried over – would be reported and regularly updated.

As you likely know, the path to a high credit rating is straightforward: Use the card, pay on time, and maintain low or no debt. Simple. After six months of doing so, your daughter’s credit history will be established. Her credit scores, which are based on the information on a credit report, would escalate as the months pass, and it won’t be long before she has a good credit rating.

A better alternative I’d like you to consider is making your daughter an authorized user on a credit card. You can open a new account – secured if you wish – and add her from the beginning, or you can probably also add her to a card you already have. Then the history of the account she’s associated with will appear on her credit reports and be factored into her credit scores. It’s an easy process.

But back to you and your amazing credit score. I want you to protect it. The advantage of an authorized user arrangement is that you would maintain all control over the account. She’d have a card with which to charge and create a credit history, but if she misuses it you could swoop in and remove her from the account. You can’t just kick a co-signer off, so an authorized user arrangement carries less risk for you.

I also urge you to give your daughter lessons in sound credit management before you hand her a card. You seem to be the master, so go for it! Explain how to charge effectively, covering the importance of on-time payments and only spending what she can afford to pay off in full. The sooner she makes that a habit, the better.

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