Someday, your child may head off to college. This is a rite of passage for many young adults. For the first time in their lives, your children live away from home for an extended period of time. They have more freedom to make their own decisions, and make their own mistakes. They learn a lot about the ways of the world as they are exposed to different people and different ideas.

Unfortunately, they're also exposed to a lot of marketing. During the opening days of a school year, you can hardly walk across campus without being bombarded by offers for a free T-shirt if you sign up for a credit card. Credit card companies aggressively market to college students for a variety of reasons. The ones with good intentions are simply trying to get a foot in the door with a lifetime customer. As a person goes to college, his needs evolve; a credit card can fit in nicely. Credit card companies can also have shady motivations. They can prey on the fact that college students have still not learned some important lessons about money, and they're more likely to have a live-for-the-moment mentality. They figure that a loving and understanding parent will bail out a child who charged too much.

Setting the Foundation

For most students, handling their own finances is part of the college experience. This may be the first time in their lives that they have made important financial decisions. The things they do now can affect them the rest of their lives. Someday they will most likely want to settle down and buy a home. Likewise, they will need to purchase their own auto and homeowner's insurance policies. The quality and affordability of loans and insurance will depend on how they handle their credit from day one. This fact is often overlooked with all of the excitement around going to college.

Should You Co-Sign?

As you send your kids off to college, you may wonder if you should co-sign on a loan with them. If they do not have any existing credit history, they may need to borrow your credit history in order to get a credit account. Granted, there is probably a way that they can open a credit card account, but it might not be a good one — perhaps there is a high interest rate on balances, or hefty fees. Co-signing can be extremely risky, as you saw earlier in this book.

Before you co-sign, consider some alternatives. One of your best choices might be to open a secured credit card for your child. You can make a deposit to a bank account, and get a credit card with a limit as high as your deposit. Not only does this protect your credit, it helps your child build a healthy credit history. Another alternative is to open a brand-new card with your child as an authorized user. You can make sure this card has a low credit limit, so you can avoid any big surprises.

If you decide to co-sign with your child, proceed with caution. Obviously you love and trust your children, but you should be cautious so that both of you don't end up with damaged credit. Have duplicate statements mailed to your house, and make sure you can login to check the account on the Internet. You don't need to snoop around in your child's private life, but you do have a right to make sure that the account is being managed properly.