What Are The Responsibilities of a Co-Signer?

When someone with bad credit or even no credit history at all wants to apply for a new card, it can be very difficult to find approval for an unsecured credit card. In many cases, the applicant will find another person, usually a relative, to co-sign on the application. This also happens with loans and other applications for credit. Oftentimes, a teenager with no credit background will utilize their parents as a co-signer.

Responsibilities of a Co-Signer
The point of using a co-signer on a line of credit is to improve the chances of approval. The co-signers credit history is taken into account during the application review process. The co-signer will need to have a great credit history in order to be eligible as a co-applicant. Once a co-signer is added to an account, they have the ultimate responsibility to ensure that payments are made. If payments are missed or the account is defaulted on, the co-signer is legally responsible to pay for the balance or suffer the consequences to their own credit score. High risk borrowers may find it difficult to find a co-signer on a line of credit or a loan.

Is the Risk Worth It?
For the person with the bad credit history, having a co-signer certainly is an advantage for getting financing. However, for the co-signer, the risks can be substantial, including severe damage to their credit score and good account history. Relying on someone else to deal properly with their financial obligations can be a very serious and difficult situation should things turn sour. When the account holder with the bad credit score defaults on an account, it will likely put a significant strain on the personal relationship they have with the co-signer. Many parents will not co-sign for their own children for that very reason. Being a co-signer is very generous but there are many considerations to make first.

Some things you should think about before becoming a co-signer on an account:

1. Why does this person have bad credit to begin with? Are the reasons something that would prevent you from helping?
2. Is the pressure from the person to become a co-signer too much or too unrealistic?
3. Are you comfortable seeking legal advice and a written legal agreement before becoming a co-signer? If you don’t feel comfortable with the arrangement, you might want to reconsider.
4. Are your financially capable of paying off debts incurred by someone else?
5. Are you comfortable losing a potentially close relationship over a money issue?

If you can not answer these questions honestly or are not comfortable with the situation, do not hesitate to decline the request.  Consider the decision just as seriously, if not more seriously, than if you were loaning someone money outright. Being a co-signer is even more risky than a cash loan because not only are you out money if they default, your credit score will be damaged considerably if you can’t cover the payments for the co-signed loan.

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This entry was posted on Wednesday, September 2nd, 2009 at 7:07 am and is filed under Card Security, 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.