Credit Risk

As the school year begins, credit card companies are in a mad dash to rack up as many new and young customers as possible before the Credit Card Accountability Responsibility and Disclosure Act of 2009 becomes effective February 22, 2010, restricting access to youth under 21 years old. According to an article in DetNews, credit card companies are already swarming campuses with tempting credit card offers for college students.

The article said:

“Banks have a certain idea that parents will bail them out, or they will graduate and get these really high-paying jobs and be able to handle the bill,” said Linda Sherry, a spokeswoman for Consumer Action.”

And once the new law passes parents who co-sign credit cards for their college aged children may end up actually bailing them out whether they like it or not. For those parents considering the implications of the new law, it’s important to understand that if you co-sign for your child’s credit card you will be held financially responsible for that debt.  And there is a high probability that your child will default or fall behind on payments if statistics are any indicator of college students’ behavior with credit cards.

The article said:

“A Sallie Mae survey found the average college student graduates with $4,700 in credit card debt, which is a 62 percent increase over the 2004 figure of $2,900. It also showed that 84 percent of all college students had at least one credit card and that students had, on average, 4.6 cards.”

What the article doesn’t mention is that many of those young people default or at least become delinquent in repaying their credit cards.  The reality is that a significant number of college students are unable to repay any of their debt immediately upon graduation.  Many even defer their student loans.  There is no deferral option for credit cards. Think twice before you co-sign any credit card agreement for ‘junior.’  If you want your child to learn about debt/credit, suggest a secured credit card.

Source: DetNews