An important pathway to building credit just got harder to access. Discover will no longer allow applicants to use a co-signer to qualify for a new credit card. The company joins other major issuers in ruling out the co-signer option, including American Express, Citibank, Capital One and Chase.
Why co-signers matter
When you don’t have much of a credit history, or the history you have is not exactly stellar, it can be hard to get approved for a credit card. Issuers don’t want to take a chance that you’ll run into problems paying back what you owe. Asking a family member or a friend with strong credit to co-sign for you can make a big difference.
Even if you don’t need a co-signer to get approved, some couples prefer to have equal standing on their credit accounts. With co-signed accounts, both parties are equally responsible for paying the bills. Good stewardship of the account will benefit both people’s credit equally. And, yes, mistakes made on the account will also damage both people’s credit, no matter who was “supposed” to pay the bill.
But among the largest credit card issuers, fewer and fewer allow co-signers. Discover was one of the last big ones to still allow co-signing.
Why the change?
“There are certain operational and infrastructure constraints with joint accounts,” said Jerry Young, Discover’s director of acquisition marketing. These constraints were making it hard for the company to “deliver an optimal cardmember experience to all of our customers,” he said.
For example, joint account holders at Discover needed to share login information, with the same username and password, which posed a security risk.
Alternatives to joint accounts
Like other issuers that don’t allow co-signers, Discover will still allow cardholders to add authorized users to their accounts. But there’s a hierarchical relationship between primary account holders and authorized users. The primary account holder is ultimately responsible for all charges made to the account. For that reason, the account’s standing will carry more weight in the primary account holder’s credit score than the authorized user’s.
The authorized user still gets a card with their name on it, can still make purchases and will usually see some effect on their credit score. For those with thin credit histories, any positive influence on their score is a good thing. Nevertheless, it isn’t the same as having a co-signed account, which would give them equal standing on the account.
Discover offers other options
Even though Discover has dropped the option of a co-signer on a credit card, the company still has some solid products for people who are building credit, and it’s still looking for ways to improve those products.
The rewards on the Discover it® Secured set it apart from other secured credit cards. Discover also reviews accounts eight months after opening to see whether a cardholder is ready to transition to an unsecured credit card and receive a security deposit refund.
The Discover it® Student Cash Back, too, remains a competitive card, even though young people will no longer be able to get a parent to co-sign on their application. It’s rare for a student credit card to offer rewards, and the card’s fees are minimal.
“The new-to-credit audience is an important segment for Discover,” Young said. “We feel that it’s our responsibility, as well as an opportunity, to help this group get off on the right financial foot.”