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Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. SHARE: Weekend Images Inc./Getty Images August 26, 2022 Nicole Dieker has been a full-time freelance writer since 2012—and a personal finance enthusiast since 2004, when she graduated from college and, looking for financial guidance, found a battered copy of Your Money or Your Life at the public library. In addition to writing for Bankrate, her work has appeared on CreditCards.com, Vox, Lifehacker, Popular Science, The Penny Hoarder, The Simple Dollar and NBC News. Dieker spent five years as writer and editor for The Billfold, a personal finance blog where people had honest conversations about money. Dieker also teaches writing, freelancing and publishing classes and works one-on-one with authors as a developmental editor and copyeditor. Mariah Ackary is a personal finance editor who joined the Bankrate team in 2019, excited by the opportunity to help people make good financial decisions. Send your questions to Bankrate logo The Bankrate promise
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What does a co-signer do? When you agree to , here’s what you’re telling the credit card issuer: “If anything goes wrong, I’ll pay the balance. All of it. Plus interest and any penalty fees.” Some people assume that co-signing a credit card is the same thing as serving as a reference. This isn’t the case. When you co-sign a credit card, you are taking co-ownership of the credit account—which makes you legally responsible for all charges made on the card. You (the person with good credit) are promising to pay the entire bill because the lender doesn’t think the applicant is quite up to the task. The lender has seen the applicant’s credit report and financial information and has determined that the person does not have the necessary credit to maintain the account on their own. Before you co-sign a credit card, Ulzheimer suggests asking the friend or relative why they are looking for a credit card with a co-signer. If the person has bad credit, that means they might be a potential credit risk—that is, they might or . That’s not a good sign for you since you’ll be stuck with any unpaid bills. If the person’s to qualify for the credit card they want, it might mean that they don’t have enough money to pay their current bills as well as an additional credit card bill—another bad sign. Is the person needing the co-signer younger than 21? Students 18 years old and older aren’t barred from getting credit cards, Ulzheimer explains, but they’ll have a harder time opening a line of credit if they don’t have the income to pay the bills. 2 The extra debt could affect your ability to get new credit
Are you planning to or for a large purchase? Before determining your eligibility and interest rate, lenders will look at your debt load—including the co-signed account. “That account will impact your score no differently than if you were the only person on that account,” says Barry Paperno, a credit scoring expert who has previously worked at FICO and Experian. As far as creditors and potential creditors are concerned, the account is yours. Every consumer can handle only so much debt. If this card pushes you into the danger zone in the eyes of your own creditors, you risk paying on your own credit cards and any future loans—and . 3 Your credit score could go down
Does being a co-signer affect your credit? Yes. It can lower your credit score—and it might even cause long-term damage to your credit history. Why? Two reasons. First, nearly all credit-scoring formulas base a percentage of your score on your current balances versus your available credit. This is called a , and it makes up 30 percent of your . The less credit you use, the better, Ulzheimer explains. If your friend or relative uses a significant chunk of the available credit on a co-signed card, it could lower your score—even if the account holder makes on-time payments every month. Second, if the account holder makes late payments or begins missing payments, their actions will also show up on . In the eyes of creditors, this is your account, so “you’re equally at risk for any sort of negative credit reporting and/or collection activities,” says Ulzheimer. Since for as much as a decade, co-signing a credit card can be riskier than you realize. 4 The account holder could increase the credit limit without your consent
The Credit Card Accountability, Responsibility and Disclosure Act, or , mandates that while the account holder is younger than 21, the co-signer has to give written permission for any credit limit increases, says Chi Chi Wu, staff attorney with the National Consumer Law Center. However, once the cardholder is past the age of 21, no federal law requires that the co-signer be notified of any credit line increases, she says. Some people, for example, decide to co-sign a credit card when their child goes off to college—believing that if anything goes wrong, they can just write a check for their child’s relatively small card bill. But if their child keeps the credit card account open past their 21st birthday and begins increasing the credit limit, the bill could end up being quite a bit more than their parents estimated. 5 If you want out you might have to close the credit card
Do you want to be responsible for your friend or relative’s credit card bill for life? If not, you need an exit strategy. Often, ending the co-signing arrangement requires closing the card account, says Nessa Feddis, senior vice president at the American Bankers Association. comes with a few downsides, and closing a co-signed credit account adds one more wrinkle. Depending on the contract and your state laws, you may need the cardholder’s cooperation, Feddis explains. It may not be as simple as just telling the card issuer you want out. Plus, any unpaid debts accumulated while the co-signed account was open are still your responsibility—even after the account is closed. Until they’re paid, they’re your bills, too. If you are considering co-signing, call the credit card issuer first to find out exactly what your options are for ending the co-signing relationship, Feddis says. Do you have to close the account? Do you need the account holder’s permission? While you’re at it, ask about your co-signer rights, including your right to access account information. Can you get account status and balance information as a co-signer? Will you be told if the credit line or interest rates change? Will you be notified if payments are late or if the account is heading for default? Knowing this will help you be prepared if you co-sign and things go south. Which credit cards allow co-signers
If someone tells you that they want to open a credit card with a co-signer, you might have an easy reason to say no. Most all major . You may have better luck with a smaller financial institution, like a credit union. Or, instead of co-signing a credit card, consider one of the many alternatives. Alternatives to co-signing a credit card
Instead of co-signing a credit card with a friend, relative or college-aged child, look at some alternatives that won’t risk your credit. Here are a few to consider: Adding an . You can add someone as an authorized user on one of your existing credit cards. The other person can use their authorized user status to build their credit without the risks associated with a co-signed credit card. Yes, you’ll still be responsible for any charges made to the card—but you have more control and if an authorized user starts making too many purchases or otherwise abusing the privilege, you can easily shut off access. A . The other person gets a card in his or her own name with a credit limit backed by a deposit. Most secured cards build credit, and many secured cards convert into traditional unsecured credit cards after a trial period. A . Parents who want their college-aged children to begin building a positive credit history should encourage their kids to apply for one of the best cards for students. They can get their own card that isn’t tied to your finances. Plus, they often come with perks tailored to students. The bottom line
Co-signing a credit card sounds like a good way to help a friend or family member build credit—but it actually comes with a lot of risk for you, including the possibility of damaging your credit history or credit score. If someone close to you is considering applying for a credit card with a co-signer, ask them to consider other options. Becoming an authorized user on a credit card, for example, offers many of the benefits of a co-signed credit card without the associated risks. A is another good way to build credit. If they still want you to co-sign a credit card account, think carefully before you agree—and be sure to understand your co-signer rights before you sign any contracts. SHARE: Nicole Dieker has been a full-time freelance writer since 2012—and a personal finance enthusiast since 2004, when she graduated from college and, looking for financial guidance, found a battered copy of Your Money or Your Life at the public library. In addition to writing for Bankrate, her work has appeared on CreditCards.com, Vox, Lifehacker, Popular Science, The Penny Hoarder, The Simple Dollar and NBC News. Dieker spent five years as writer and editor for The Billfold, a personal finance blog where people had honest conversations about money. Dieker also teaches writing, freelancing and publishing classes and works one-on-one with authors as a developmental editor and copyeditor. Mariah Ackary is a personal finance editor who joined the Bankrate team in 2019, excited by the opportunity to help people make good financial decisions. Send your questions to Related Articles