What to know about being a guarantor for your child
A credit card can be an important step on the path to financial independence for young adults. It is a convenient way to make purchases, and it can also help build a credit history. However, with the recent passage of the CARD Act limiting credit card access for those under age 21, your college-aged son or daughter 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, make sure you understand the responsibilities. As a guarantor, you agree to pay the balance if the borrower is unable to make payments, and missed payments can damage your credit score. You must be at least 21 years old to be a guarantor and have established good credit. Unlike a cosigner, guarantors are not able to make charges using the credit card, and don’t receive a separate card for the account.
As a guarantor, you provide additional assurance that the account will be managed in a responsible manner, while helping your child begin establishing his or her own credit history. Teach your child about using credit responsibly, and ask the credit card issuer these questions:
1. Will I have access to the account balance and payment history? Since your own credit is on the line, you will want to keep close tabs on the account. If you are a guarantor on a Bank of America credit card, you can receive access to the same account information as the borrower.
2. How would I end the guarantor agreement? Most people become guarantors on credit cards to help their kids get started building credit, without the intention of remaining on the account for life. For Bank of America credit cards, the guarantor can call customer service if he or she wishes to be removed as guarantor from an account. Both parties must be present for the conversation and a credit check is required for the remaining party. If the remaining party does not qualify for credit, then the account may be closed and the balance would be due.
Alternatives to being a guarantor
There are other ways to help your children get access to credit. Consider some alternatives to being a credit card guarantor:
- 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. When considering a secured card, make sure the issuer reports to all three credit bureaus to ensure that it 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.
- You can make your child an "authorized user" of your credit card. With this arrangement, the child gets charging privileges, but you are responsible for the payment. Monitor your child's spending and remove charging privileges if they are abused.
- 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 can pay.
Finally, young adults can improve their chances of qualifying for a credit card without a guarantor by having job. A small paycheck may yield a low credit limit, and there's no better way to learn about finances then by earning and spending your own money.
What's next? Teaching your kids about money
Some accounts and services, and the fees that apply to them, vary from state to state. Please review the information for your state in the Personal Schedule of Fees (at www.bankofamerica.com/feesataglance or at your local Banking Center) and in the Online Banking Service Agreement at www.bankofamerica.com/serviceagreement.
