Risks When You Co-Sign for a Credit Card

If you have a friend or family member that’s applying for a credit card, you may be tempted to co-sign for the credit card.  After all, you want to do anything you can to help out family and friends right?.  If that person has no credit history or has a poor credit history, you may feel like you are that person’s only hope of getting a credit card.  Before you co-sign for that card, however, there are some financial implications that you should consider

Deciding to become a co-signer is somewhat of a risky choice to make.  Riskier than most people are willing to acknowledge.  At the end of the day, being a co-signer makes you responsible for the debt.  If you co-sign for a credit card, you and the other person on the card are both free to make purchases with the card.  At the same time, you are both responsible for making certain it gets paid on time.  Therefore, even if the other person on the card is the one that made all of the purchases, you are still responsible for making sure the card gets paid. If you don’t pay the card on time, you can be sent to a bill collections agency and both of the co-signers credit scores can suffer.

Co-Signing with a Spouse

If you’re married, you may think that co-signing for a credit card with a spouse is no big deal.  After all, all of your debts are considered to be jointly owed.  While this may be true in the eyes of divorce court, it is not true with collections agencies.  If your husband has a card that is in his name only, the collections agencies cannot chase you down for repayment.  In addition, if you get divorced, you will not remain responsible for the debt.  If you co-sign for the card, on the other hand, the collection agencies can still come after you even if the courts decided your ex is responsible for paying off the debt.  This means your credit score can take a beating without you even realizing it because you assumed your spouse was responsible for the debt.

Helping Out Your Child

If you have a child and you are trying to help her build a credit history, applying for a credit card can be an effective method.  At the same time, your child may have a difficult time getting a credit card because she doesn’t have a credit history.  In this case, you may want to co-sign for the card in order to help her get a card and start building a credit history.  Co-signing for a card in this case, particularly if your child is still a minor, is not a problem so long as you keep tabs of the credit card and make certain the spending does not get out of control.  You should also keep the credit limit low.  That way, if your teen uses the card without you realizing it, the financial damage will be kept to a minimum.

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This entry was posted on Friday, May 16th, 2008 at 6:54 pm and is filed under Tips & Advice. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.