Co-Signing on a Credit Card
Applying for a Credit Card with a Friend or Relative
What you should know if you want to co-sign with a family member or friend on a credit card application. Is it a good idea? How to safeguard your own credit.
Wanting to help your friend, relative or child apply for a credit card is a selfless gesture. But will this move really help your loved one? And what about your own credit?
What You Should Know Before You Co-sign on a Credit Card Application:
- You might hurt your own credit score. Helping Junior build credit history is a move any parent would make for their child, you say. It’s a nice idea, but in reality you’re not helping your child or yourself. You have to ask yourself why you’re co-signing in the first place. If your son or daughter is right out of school and needs a credit card, there are plenty of ways to get one without involving you. A secure credit card or department store card would be a good place to start. And neither requires a strong credit history. On the other hand, what if your best friend has just gone through some tough financial times and his credit history is shot. If you agree to co-sign on your friend’s application and he doesn’t change his financial habits, your credit score will sink just as fast as his.
- The credit card company may not notify you about delinquent payments until it’s too late. If your friend/relative is late making payments, you won’t know about it until he is at least two months behind. At that point, your credit score will already be affected. If you are determined to co-sign anyway, make sure you can view the account activity online 24/7 so you know exactly what’s going on and prevent further damage.
How to Help Someone Who Is in Debt:
If your loved one is in financial trouble, co-signing on a credit card application is only going to make the problems worse and deepen his debt. What your friend/relative needs may be some financial counseling. Encourage him to seek help with a reputable credit counseling service. The National Foundation for Credit Counseling lists non-profit agencies in every state.
It is difficult to watch your adult child flounder with money problems. But "helping" might prove counterproductive. After all, people learn from their mistakes and a lot of young adults in their 20s have failed once or twice and eventually come out on top.
If you have a teenager, start teaching him/her how to handle money. Start with a prepaid card for teens that you monitor closely. It is never too early to start learning about money management.
