When someone you know needs financing via credit card, they might ask you as a co-signer to be approved.
Co-sign credit card is when one person agrees to be liable for another person’s loan or credit card debt. It can be a helpful tool for people who cannot afford to borrow money or is ineligible for a loan due to their credit score. The co-signer is legally responsible if the other person fails to repay the debt.
BadCreditResources.com is a site dedicated to helping people with bad credit rebuild their credit. And we have all been there. We need a loan or a credit line but keep getting turned down because our credit scores are too low. At the time, we looked around and asked friends and family members to help us by co-signing a loan.
If you were lucky, someone said yes and helped you out. But do you know how lucky you were? There are plenty of legal liabilities about co-signing that you should keep in mind.
In general, it is best to avoid co-signing for anyone on a credit card (or loan). No matter what your relationship with that person may be.
Here are Six reasons why you should NEVER co-sign credit card for someone.
The law requires you to pay the bill when you co-sign for a credit card.
When you co-sign for a loan or credit card, you are essentially guaranteeing the lender that you will pay the debt if your friend or relative cannot pay.
But what if you cannot afford to make those payments? Unfortunately, the lender will still hold you responsible.
The lender has the right to and will go after you for the payment. In the case of a car loan, if the car ends up being repossessed, the repossession will show up on your credit report.
The cardholder is in control.
You co-sign for a credit card with a small $300 limit. But what if your friend or relative makes on-time payments for six months and then requests a credit limit increase? Based on their income, that $300 card can turn into a $2500 credit card or more! You will not be notified that you are now the co-signer of a $2500 credit card. And, yes, you are responsible for the entire credit limit. Not just the $300 you agreed to.
Your credit is directly affected.
Every time the person you co-signed for makes a late or no payment, it will negatively affect your credit score! You must make it clear to your friend or family member that if they fail to make a payment, they must notify you immediately. You must make that payment for them. It may not sound fair, but late payments will appear on both your credit report and theirs.
Lenders consider this your debt.
If you co-sign for someone who constantly maxes out their credit limit, It can adversely affect your credit utilization.
Ideally, you need to use less than 30% of your available credit if you are currently at that 30% threshold and the person you co-signed for constantly maxes out their credit. Your utilization will be more than 30%. Once you reach 35% credit utilization, you will see your credit score start to drop because you are using too much credit. You can fix that by paying down more of your credit card balances or advising the person you co-signed for to reduce the amount they charge each month.
You may be liable for any legal action.
If you co-sign a loan, you can be responsible for any legal actions that result from the loan. Both the lender and you can be held accountable in a lawsuit. Furthermore, if you are a co-signer on a credit report, you can also be responsible for any harm to your credit score brought on by the default.
Removing yourself from the co-sign credit card contract is not always easy.
In many cases, you cannot get out from under this credit card co-sign contract without the full cooperation of the cardholder. If something goes wrong, not only are you still tied to the agreement, 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.
Never co-sign a credit card application. You will not only be responsible for the debt, but you may also find yourself at the mercy of the card issuer if something goes wrong.
So if a friend or family member asks you to co-sign, gently but firmly say no. And point them to a site like ours. We have hundreds of articles on how to manage not just your credit but your finances. We also have all kinds of bad credit financers to help them start rebuilding their credit.
Wish I had seen this article BEFORE I did this for a sibling.
Good information and food for thought. Bookmarked!
Hi Mason,
Thanks for taking time to read our article, please feel free to read our other articles. Let me know if there is a subject you are interested in and if I know something about it, I’ll write an article for you!
Thanks,
Shelly
Hi Vince,
Great that you liked our article! Please share it with your friends!
Thanks,
Shelly
I actually have co-signed for a credit card for a really good friend. Worst idea ever on my part because he barely paid his debts. I got out of it after a long time, but it was an annoying thing to deal with. I will only co-sign with my wife, never will I ever co-sign with anyone else. No way.
There’s a major risk to co signing a credit card for someone. I myself would only do it if I trust the person enough to pay their bill every single month. One single time I end up having to pay I will get very annoyed. I never understood the idea of co-signing for such a thing. I can understand if you’re married and or you do it for your kids, but for friends or other family it just seems way too risky to me.
Hi Jack,
Unfortunately there are more examples of co-signing going wrong then it being a good experience! At least you learned something, and I hope you didn’t let your friend off the hook with telling him how he jeopardized not just your credit, but your friendship! Hopefully he won’t do that to anyone else!
Hi Cameron, a lot of people feel pressured to help out a friend or family member. Esp, if that person is suffering because they can’t get the financing they need. Its really a tough thing to do, to say NO in those situations. But for the sake of your own credit and financial well being, it can be necessary. Thanks for visiting our blog and I hope you feel free to comment on more articles!
Shelly
These facts you point out is a big reason why I never co-sign for most things. Credit cards are a big thing I do not co-sign for. The big one I think is that my credit score goes down too and I may need to end up paying something towards their bills, which is something I hate doing and never will do. So yeah, no way to co-signing ever.
Hi Ashley, thanks for being a part of our community! Anyone who is asked to co-sign for someone should think long and hard about it! It often ends in disaster and someone who once had great credit ends up needing a co-signer themselves next time they need a new line of credit!
Thanks for stopping by again and sharing our articles!
Shelly
Hi Britanica, Your friend was lucky! It was just $1200. When I was the credit manager at a credit union, I had to turn down a lot of people that wrote me letters about WHY their credit score was so low. As a credit union we would try to accommodate our members, BUT if you co-sign for someone you are saying you will also be responsible for the debt. I would look at a persons credit report and see they never miss a payment but they have a repossessed $30,000 car on their credit report because they co-signed for a friend or family member. I’ve even seen foreclosures on otherwise pristine credit.
I have to tell them, never cosign unless you can comfortably make the payments when your friend of family member fails to do so!
Thank you for becoming a member of our website community!
When I was younger, my friend’s mother cosigned for her friend. This friend needed a computer for school so she felt bad that her parents could not afford it. She swore to pay her back, but never did. She never even went to school. My friend’s mother’s score was hurt from it and she had to pay off the $1,200 debt she didn’t even know she had till a year later. I agree, never cosign a loan for anyone. No matter how big or small.