PARAMOUNT MORTGAGE - LENDER'S BLOG

(CNN MONEY) — You’ve tried to give your kids every leg up, paying for their ballet lessons, braces, bursar bills, and more. But as they approach adulthood, they may "need" something more precious than your money: your signature.

Most students under 21 can't get a credit card without an adult cosigning. And young people without credit histories or well-paying jobs often can't borrow money without a parent's help.

Even when they can get loans on their own, the rates they qualify for may be prohibitively high.

So should you offer your John Hancock to guarantee a child's loan? Only if you're prepared for the risks: The Federal Trade Commission estimates that three out of four cosigners are asked to repay loans because the primary borrower has defaulted.

Here's how to decide where to draw the line and when to sign on it.

Pretend you're the lender –  You may know your child to be trustworthy, but that doesn't mean he's not a default risk. Ask the same questions the lender will: Can your kid afford this obligation? How much of his pay will it represent? How does he plan to cover the bills if he loses his job?

Understand the risks – Forget the notion that you're secondary when you cosign: Creditors will come after you if your child fails to pay the bills. So don't agree unless you can afford the payments yourself, warns Rapid City, S.D., financial adviser Rick Kahler.

Know, too, that the FICO credit scoring formula treats loan co-borrowers no differently than primary account holders — which means your score could dip if junior is delinquent and take a dive if he defaults.

Are you planning to apply for credit soon or buy a new home? A cosigned loan is reported as outstanding debt on your credit file, thus crimping your ability to borrow.

Limit your exposure – If you do decide to cosign, take precautions to curtail losses. On a lease, get the parents of your child's roommates to cosign with you. That way, it's less likely you'll have to foot the bill for someone else's kid.

Helping your child borrow for a car? Put the title in both your names. (If he stops paying, you can sell the vehicle.) Once the debt is paid, you can have your name removed and celebrate with a family outing — at which you'll likely have to pick up the check.