When someone you know is in need of financing via credit card, they might ask you as a co-signer in order to be approved.
While this sounds harmless, there are plenty of legal liabilities about co-signing that you should keep in mind. In general, it is advised to avoid co-signing on a credit card (or loan) for anyone. No matter what your relationship with that person may be.
Here are five reasons why you shouldn’t go through with it.
You are required by law to pay the bill.
In the event that you co-sign a credit card, you’re agreeing to pay the balance if the card owner cannot. You are bound to this debt by law. The reason you’re required to co-sign is because the creditor don’t think the person taking out the law is qualified enough. This means the cardholder might already have a bad or little credit and probably lacks financial stability.
The cardholder is in control.
If the credit card company decides they are willing to raise the credit limit, the cardholder can accept without your consent. You’re still liable regardless of the increase in credit limit. The worst part is that you won’t be notified if this happens.
Your credit is directly affected.
If anything goes wrong, your credit will be directly affected by the actions of the cardholder. Not only are you liable for the debt, but your personal credit score will take a hit. Especially if payments are not made on time. Or worst, if no payment had been made.
Lenders consider this your debt.
Not only will it hurt your credit but the debt and transactions associated with the credit card will also be associated with the co-signer’s credit. Lenders will see and consider the debt as yours. Even a small amount of debt can sometimes push you into a whole different bracket.
Removing yourself from the contract isn’t always simple.
In many cases, you cannot get out from under this credit card co-sign contract without full cooperation of the cardholder. If something goes wrong, not only are you still tied to the contract but your personal relationship with the cardholder will also suffer. Even if the contract is terminated, you will still be liable for any debts. Your credit score will still be penalized for any lapse in payment while you were still the co-signer of the card.