Yes, many credit card companies enable applicants to list a co-signer in order to increase their odds of getting approved for account terms that their credit standing ordinarily wouldn’t merit. Having a co-signer doesn’t guarantee credit card approval, though, and it doesn’t come without its fair share of associated risks either.
You see, a credit card co-signer essentially vouches for the main applicant by agreeing to assume liability for any balances that person might ultimately incur. The co-signer is therefore putting his or her own financial reputation on the line in order to give the primary applicant a chance to prove him or herself.
As you might imagine, this dynamic works well in certain situations, yet is a recipe for disaster in others.
When It’s a Good Idea to Use a Co-signer
Before getting into specific situations, it’s important to note that applying for a credit card with a co-signer is only a good idea if both parties trust each other implicitly and the odds of financial or relationship difficulties are minimal. In addition, the co-signer must have good enough credit to garner an above-average credit card offer and enough income to comfortably handle an additional line of credit.
A particular financial institution may have restrictions, but there isn’t a law that restricts who can co-sign with you,” says Ryan Law, director of the Office for Financial Success and the Center for Economic Education at the University of Missouri. Typically it would be a relative, but it could be anyone with good credit.
Assuming those prerequisites are met, getting a credit card co-signer can be beneficial if you:
- Are a Student Looking to Establish Credit History: It’s a good idea to begin adding positive information to your major credit reports at a young age (preferably as soon as you turn 18) so you can enter the “real world” ready to take advantage of attractive loan rates, credit card offers, job opportunities, auto leasing deals, and/or housing situations (as long as they’re within your means, of course).Now, students can typically get approved for a credit card on their own – even if they’re under the age of 21 – as long as they have the income/assets needed to at least make monthly minimum payments. But if you don’t have that income, asking a parent to co-sign is a prudent option.
- Made Mistakes in the Past, But Now Have the Maturity & Income to Use Credit Responsibly: If your credit standing is depressed due to a missed payment or other financial mistakes made when you were “young and dumb,” using a co-signer to get a new credit card is one way to expand the options at your disposal, assuming that you are now in a position – both financially and emotionally – to handle the responsibility of being a credit card user. A close friend or family member definitely knows you better than your credit card company and might therefore be willing to effectively grant you credit sooner than a given financial institution.
- Need an Emergency Line of Credit: Few credit card options available to people with damaged or limited credit come with any spending power to speak of. That’s problematic for folks who require a new credit line in order to finance emergency expenses – car repairs so they can get to work, for example.
- Want to Take Advantage of a One-Time Deal: Credit card companies are known to offer attractive sign-up perks like rewards bonuses worth a few hundred bucks or long-term 0% financing deals. You need above-average credit to get them, though. Finding a co-signer therefore presents an opportunity for someone with below-average credit to earn extra rewards or save on big-ticket purchases.
When It’s a Bad Idea to Use a Co-signer
In general, it’s a bad idea to have someone co-sign for a credit card if there’s even the slightest chance that you won’t be able to pay for what you ultimately charge. The same is true if you don’t have a rock-solid relationship with the person who would be co-signing for your account.
After all, a co-signed credit card gone wrong can result in:
- Credit Score Damage for Both Parties: As mentioned previously, a credit card co-signer is responsible for the account they lend their name to. This account will be listed on both the main account holder and the co-signer’s credit reports, and irresponsible usage will come back to haunt both parties. Even though the co-signer didn’t directly mismanage the account, their mistake will have been putting faith in an unreliable friend or family member.
- Debt Liability: If you co-sign for someone who ultimately racks up a bunch of charges they’re either unable or unwilling to pay for, you’ll be on the hook for cleaning up the mess. This can obviously put you in a tight spot because it’s unlikely that you’ll keep close enough tabs on your friend/family member’s spending habits to factor his or her debt into your budget. Rather, the unpaid balance will likely come as an unwelcome surprise that you must either deal with or risk credit score damage and the threat of a lawsuit.
- Ruined Relationships: You know the old saying, there are two things you shouldn’t discuss in polite company: 1) Money and 2) Politics? Well, co-signing for a credit card forces you to discuss the former with at least one person, and if things don’t go according to plan, debt and credit score implications can create an irreparable fracture in your relationship. Good friends are a rare commodity, so it’s very important to consider the negative ramifications of a co-signed credit card gone wrong.As such, Law recommends that the potential co-signer sit down with the co-signee to be ahead of time in order to lay out some ground rules. “Review their budget and talk with them about the consequences of not paying,” he says. “Help them understand that if they can’t make a payment they need to talk with you before the due date so you can decide together how best to handle the situation. … The financial institutions will generally come after the co-signer first if payments aren’t being made because they know you have the money to pay it and you stand to lose more with your credit score going down.”
While comparing credit card offers will enable you to find a number of different options that accept co-signers, that doesn’t mean using one is a wise idea. You should carefully consider why you want someone to co-sign your credit card application as well as how your relationship and financial dynamics mesh with a co-sign situation before ultimately pulling the trigger.