Rules for Co-signing on a Credit Card

Before you help a friend or family member build their credit by co-signing on a credit card, make sure you know the rules and the risks.
Tony Armstrong
By Tony Armstrong 
Cosign a credit card

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Credit card companies view someone without a solid credit history as a risk, making it hard for that person to get approved for a card. Recruiting a relative or friend with a strong credit score as a co-signer can make the application more appealing, since the co-signer assumes the responsibility of paying any debt that the cardholder doesn’t make good on.

It's a good deal for the cardholder, but what if you’re the one being asked to co-sign?

Serving as a co-signer on someone else’s card can end up hurting your credit score, badly. So you’ll want to think carefully before agreeing. Here are several ground rules.

Vet the applicant

You’ll want to get a good sense of the person’s financial background. You might already have this information if you're co-signing for one of your children, but in any case, you need to have a conversation with the person seeking your help. It can be awkward, but it can help ease your anxiety. And if it turns out your friend has a bad and unreformed habit of maxing out cards and missing payments, think twice about helping him open up a new account.

Discuss responsible credit card use

Just because co-signing on a child’s credit card application is fairly common doesn’t mean it should be taken lightly. Sit your child down and underscore the importance of responsible credit card use. Tell him or her not to spend more than 30% of the limit and to pay off the balance each month — on time — to prevent fees, interest and damage to both of your credit scores. If you're co-signing for someone besides a child, make sure they understand these same risks.

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Make sure you can afford the risk

Even if your friend is on his or her knees begging you to co-sign, put your own financial interests first. It may be that you’re in a situation where your credit score really can’t afford to take a hit, like in the months leading up to a home mortgage application. And if you’re having a tough time making ends meet as is, you might want to hold off on co-signing on someone’s credit card and assuming responsibility for their debt.

Keep an eye on the account balance

Whether it’s your child, another relative or a friend, the cardholder might not possess the best personal finance skills yet. For that reason, keep an eye on the account online to make sure payments are being made. (Your ability to monitor the account like this should be an absolute condition of co-signing.) To help the primary cardholder out, set up payment alerts on their phone or email account.

The takeaway: Your credit score is at stake when you co-sign on a credit card application, so set some ground rules. Doing so allows you to protect your financial well-being while helping someone else develop healthy credit habits.

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