Crediting Kids

I have long advised people on many of the ways to use kids to save on taxes. Shifting income from high tax bracket parents to low or zero tax bracket kids has long been a way to dramatically reduce the income tax burden. Now, it seems a lot of parents have been shifting their credit problems to their kids.

When people have credit problems, it has long been possible to get a semi-fresh start by filing Form SS-4 with IRS and obtaining a Federal Employer Identification Number (FEIN) that can be used in place of a person's Social Security Number (SSN). While credit repair services charge for doing this, anyone can do it for free.

Another way some people have been using to obtain credit, in spite of bad personal histories, has been to apply for credit cards under their kids' names and SSNs, often not telling their kids they are doing this. Very sneaky. However, as this story describes, when the parents don't pay off their kids' accounts, it leaves a very nasty trail that ends up hurting the kids when they try to obtain credit on their own.

I have to admit that I wasn't aware of how large this problem had become, mainly because I can still recall that credit cards weren't issued to kids when I was growing up. I didn't get my first credit card until I was almost out of college, and it was a special Bank of America program for college students at the time. Its limit of $300 wasn't as dangerous as the cards that are currently being issued to young folks.

KMK
- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 11/27/2002 06:38:00 PM Send this post: