Reasons You Shouldn’t Co-Sign for a Credit CardAugust 14, 2010 - 9:00 am
With the recent change in credit card requirements for young adults, you can pretty much count on your 18-21 year-old child, relative, or friend asking you to co-sign a credit card for them. Federal law now requires credit card companies to verify a young adult’s income when they apply for a credit card. If the young person doesn’t have sufficient income to pay the credit card bill, they’ll need an adult co-signer who does have enough income. Before you agree to sign, make sure you know the consequences.
Drawbacks of Co-Signing
When you co-sign for a credit card, you’re just as much responsible for the credit card balance as the other person. When your young adult can’t afford to pay the credit card balance, the credit card company will come after you for payment. After all, that’s what co-signers are for, to add additional guarantee that the balance will get paid.
Your credit is on the line when you apply for a credit card as a co-signer. Any payments missed will also be added to your credit report. Once late payments are put on your credit report, they also affect your credit score and your ability to get other credit cards and loans in the future. You’ll have to make sure the other person is making credit card payments on time, even if it means making minimum payments yourself to protect your credit score.
Co-signing on credit cards could prevent you from getting your own credit cards and loans. When you apply for a credit card or a loan, the bank will check your credit report to see how many other debt obligations you have. Too many open accounts, even those with joint responsibility, could lead the bank to turn down your application or ask you to get a co-signer.
If you’ve already co-signed on the credit card, the credit card issuer may only let you remove your name when the other party can qualify for the credit card alone. Some credit card issuers won’t let you remove your name at all. You’d have to close the account all together and pay off the credit card balance to remove your liability for the credit card.
Of course, co-signing for an 18-year-old is different from co-signing for a 30-year-old. The 18-year-old often needs a co-signer, even with the necessary income, because he hasn’t had a chance to establish his own credit history yet. On the other hand, a 30-year-old who needs a co-signer has probably had some credit problems in the past. You should wonder why someone at that age needs a co-signer.
When someone asks you to co-sign a credit card for them, consider all the drawbacks. Co-signing has no benefit to you. You only get the satisfaction knowing that you’re helping someone else. But as the saying goes, “No good deed goes unpunished,” your credit could be damaged in the process of trying to help out a loved one. More often than not, the answer to co-signing should be “No.”