Choosing to Co-Sign on a Credit Card
Friday, February 22nd, 2008There are some people who simply can’t qualify for a credit card on the strength (or rather the weakness) of their own credit. Those people may be teenagers that haven’t established enough credit yet or people who have made credit mistakes that landed them in the bad credit no man’s land. If you know someone like that, they might ask you to co-sign on a credit card application for them. Should you do it? The answer depends on the amount of trust you’ve established with the individual and the risks that you’re willing to take with your own credit.
The first thing that you need to realize is that cosigning on a credit card isn’t something that should be taken lightly. Many people think that they can just sign for the card, let the person receive the card using the strength of their good credit and then forget about it. The reality is that co-signing on a credit card means that you are telling the company that you’ll help take responsibility for the credit card. That means that if the recipient of the card racks up a bunch of debt and then doesn’t pay it, you’re going to get called up and asked to start taking care of the problem. That can not only put you out of some money but may also impact your credit score and damage your own ability to qualify for credit cards and loans in the future.
When you put it that way, it sounds like you should never co-sign on a credit card application doesn’t it? That’s not necessarily true. There are some people in our lives that we’re willing to take a risk like this for depending on the situation. For example, you might have a friend that you know has been working really hard to rebuild credit and you may trust that she is going to be able to be responsible with the card. Or you might be interested in co-signing for a low-limit credit card to get your teenager started out on the path to learning how to establish good credit. There are good reasons to help people in our lives by co-signing on a card. We just need to make sure that we weigh those reasons against the risks before agreeing.
It’s important to remember never to agree to co-sign on a credit card just because we don’t want to damage a relationship with someone. If the relationship is so fragile that it can’t handle your denial to co-sign on a card then it probably wasn’t a good idea to get your money so mingled with that person anyway. It’s important to make sure that communication about the money is open and that you both know what your expectations are about agreeing to co-sign. If you think it through and discuss it thoroughly, co-signing on a credit card can be a way to help someone out with minimal risk to yourself.
