Should You Co-Sign for a Credit Card?

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Face it: humans are far from perfect. Being the dominant species on the planet doesn't mean we always make the best choices. Sometimes those bad choices are related to our credit. In those cases, mistakes can haunt us for years to come.

So what if a loved one with less than stellar credit asks you to co-sign for a credit card? This can be a tough decision. Of course you want to help them build or rebuild their credit, but you probably have valid concerns about harming your own. After all, your credit score is a numeric representation of how responsible you are with your finances. And it can be used against you when you try to rent an apartment, buy a car, or get a job. How can you say yes to a friend in need without making a mistake that could have a very real impact on your life?

Before you co-sign, remember that if this credit card account goes unpaid, your credit score will be affected just as if you had caused the delinquency yourself. If this is not a chance you're willing to take, politely point your friend to other possibilities, such as secured credit cards or other cards designed for consumers with poor or no credit.

If you do decide to co-sign, do it with the intention of taking over payments if it becomes necessary. If you can't afford to do that, be honest with your friend. If you can afford to assume responsibility for the potential debt, there are some steps you can take to protect your credit from nasty surprises.

First, set some conditions. There has to be an agreed-upon credit limit, and your friend must agree to let you know if they're unable to make a payment - before that payment is due. Also, have the credit card account set up so that it can be viewed and managed online. You should have access to the account. This gives you greater control and keeps you up to date about any changes to the credit card account.

In the past, credit card holders with good credit could simply add a friend, spouse, or child as an authorized user. This temporarily improved the authorized user's credit score, allowing them to apply for their own cards or loans. But this tactic, called "credit piggy-backing", is now obsolete. Authorized users no longer get a credit boost. In order to help someone pump up their credit, it's now necessary to risk your own through co-signing.

Should you co-sign or not? That's a question that only you can answer. Ask yourself the questions presented here, and then make an honest assessment of your friend's trustworthiness. Co-signing isn't the only choice available to people with poor credit. If you think it's likely that your own credit would suffer, forget the co-signing and encourage your friend to explore their other options.

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Source by J. Weiss