Somewhere between the age of 17 and 18, young adults are supposed to be gifted with the magical ability to handle college, adulthood, taxes and credit for the first time. Unfortunately, most people move from their teens into adulthood without a firm grasp on how to handle all this newfound opportunity and responsibility, and without a good idea of the consequences that some of their new decisions might bring. (To help you establish some strong credit, read How To Establish A Credit History.)
TUTORIAL: Credit and Debt Management
That is why it's so important for newly-minted credit card holders and student loan borrowers to be given a set of guidelines regarding financial liabilities that they should avoid.
Avoid Cosigning Loans
If you have a friend or family member who wants a loan for a new car, tuition or other big ticket purchase, they may ask you to cosign once you turn 18. As a cosigner, you are guaranteeing that the primary borrower will pay back the loan. If they don't, you will. No matter how much you trust the individual who is asking you to cosign, it's best if you don't sign your name to any loan you aren't willing to pay.
If the primary borrower pays late or stops paying, collectors will come after you for the balance. Additionally, it will affect your credit rating, which could hurt your ability to get your own loans for years into the future. It's one thing to be accountable for your own financial activity, but being accountable for someone else's is generally a bad idea.
Don't Add Authorized Credit Card Users
When you take out a credit card, you can add authorized users to the account. These individuals will get credit cards in their names and all the charges they make on the account will be applied to your balance. The person who is responsible for paying that balance, no matter who charged it, is the account holder. Authorized credit card users don't have to make monthly payments, their credit isn't affected by late or non-payments and they don't get copies of the bill. Instead, they can charge on your account as much as they want and never have any financial liability.
Skip the Joint Account
Whether it's through a bank account or credit card, at 18 you now have the opportunity to share your financial life with the person that you love, but should you? While you may not be able to imagine a life without this individual right now, things can change. With a joint account, continued access to your financial life even after a break up, is extremely hard to stop. You can't simply remove someone from a joint account like you can from your dating life. You have to close the accounts and open new accounts. Until you do, they can access the money and credit you have available in the joint account
If you watch daytime television, then chances are good you've stumbled on a few court show episodes in which one person is suing another for unpaid cell phone bills. It happens all the time. Someone runs uphis or hercell phone bill and can't pay it.Then cell phone service is cut off, and they beg a friend to add them to their cell phone contract. Once you add someone to your contract, you are guaranteeing his or her payment which means that you need to pay the bill if he or she doesn't. If an individual doesn't respect his or her own credit enough to pay the bill they run up under their own name, what makes you think they will treat yours any differently?
The Bottom Line
If a bank or other financial institution isn't willing to open an account or extend credit to an individual, then you might want to rethink your own willingness to. Look out for your own financial health and wellness first. Don't allow someone else to sabotage your financial future when you are just getting started. (For tips on how you can improve your credit, check out 5 Keys To Unlocking A Better Credit Score.)