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Avoid Co-Signing for a Credit Card

by Francine Huff

You may find yourself one day in the uncomfortable situation of being asked by a friend or relative to co-sign for a credit card. While you may have good intentions about helping that person, it's best to err on the side of caution. Here are four reasons to avoid becoming a co-signer on a credit card application:

  1. If someone needs a co-signer for a credit card, it means they have bad credit or no credit history. It's a good bet that your friend with bad credit has a history of missing payments or making payments late. That person also may have credit cards and other accounts that have been turned over to collection agencies or even written off. If you know that your friend is irresponsible with money, co-signing for his or her credit card isn't going to change that.
  2. You are responsible for all credit card debt if your friend stops paying on a credit card. Even if you never made a purchase and only co-signed to help that person, out you are liable. Credit card companies can go after anyone who signed a credit card application. Creditors can use the same collection methods used with the borrower, such as garnishing your wages or filing a lawsuit.
  3. Your credit score could take a hit. When your relative makes late payments or maxes out the credit line, it shows up on your credit report, too. The co-signed card also makes it appear that you've taken on more debt, so that can work against you if you decide to apply for a mortgage or some some other type of loan.
  4. Your relationship with your friend may become strained or even end over a co-signed credit card. Even family members have become estranged over problems related to a co-signed credit card or loan. Your loved one may be disappointed that you won't co-sign, but you're more likely to preserve your relationship in the long run.

Even with all the pitfalls of co-signing for credit cards, you may still be determined to help out a relative. (For instance, many parents co-sign for their kid's first credit card.) If you do decide to help, make sure that you fully understand what co-signing means. The Federal Trade Commission requires that you receive a co-signer's notice from the lender that explains your rights and obligations before signing a credit card application. Make sure to read it carefully.

Published 03/01/11 (Modified 07/09/14)

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