Reasons Why You Shouldn’t Cosign for a Credit Card
Cosigning for a credit card has been around for years, and many people have done it. However, this is usually a bad idea, and there are many downsides associated with this. But, for someone with poor credit, it may seem like a viable option. There are many reasons you should never cosign for a credit card.
We’ll talk about what a cosigner is, and why they’d consider doing it. We’ll also list a few reasons why cosigning is a bad idea. Finally, we’ll talk about another option you may suggest to the person who wants you to cosign for a credit card.
What is a Cosigner?
A cosigner is a person with good credit who cosigns a credit card or loan for someone with bad credit. For a person with bad credit, the cosigner guarantees the loan will be paid in full and on time. If the person defaults on the loan, it’ll fall to the cosigner to repay it.
A cosigner drastically increases the person with poor credit’s chance of getting their line of credit. Additionally, the cosigner will typically have a strong credit history and a high credit score. The lender will see this as security that they’ll get paid back.
Reasons Why People May Cosign for a Credit Card
1. It’s for Family or a Friend
One of the main reasons people cosign is because a friend or family member asks them to help. You’re more likely to do it because you trust them because you know them. You don’t want to seem like the bad guy and say no.
2. It Helps to Build Positive Credit
For someone who has poor credit, on-time payments can help build a good credit history. Additionally, simply qualifying and getting a card is difficult with bad credit and a cosigner can help. The cosigner is a security blanket for the lender, and it almost guarantees they’ll get their money back.
3. You’re Helping Somone Get Financing
If someone asks you to cosign for them, chances are they need the money for something. Whether this is a car, loan, or money for an emergency, they can’t wait. If you cosign, you can help them secure the money they need. This is especially hard if the person is a family member or a close friend. A better option for parents is to make their child an authorized user on their credit card account rather than cosigning. Often times college students can get a student credit card without needing a cosigner.
Why is Cosigning for a Credit Card is a Bad Idea
You Can’t Back Out
Once you’ve named yourself as a cosigner on something, you can not back out. You’re committed to this debt until the person pays it in full. You sign a contract, and you usually can’t get yourself out if something goes wrong.
If You Cosign for a Credit Card It Can Add Stress Between People
If you cosign for a credit card it can add stress to you and whoever you cosigned for. So if you don’t like how much they’re spending or they fail to pay it back, stress builds. In a relationship overspending is a leading cause of breakups and contention. Are you willing to risk friendships or relationships over money?
You’re Risking Your Own Credit When You Cosign for a Credit Card
If the person who wants you to cosign is a risk a lender isn’t willing to take, why should you? You’re the one that is going to risk your credit score and stain your payment history. If the person fails to pay it back or misses payments, this impacts your score. A single missed payment can plummet your credit score up to 100 points. Additionally, if it goes to credit collections, the debtors could come after you for the balance.
You Could Owe More Than the Original Balance
If the person defaults on the loan and it falls to you to pay it back, be prepared to pay more. By the time it goes to collections, there are several fees added to the balance. The debtor may add interest charges, late fees, and failure-to-pay fees to the balance. You could owe hundreds more by the time you’ve managed to pay the balance.
You Could Have Financial Problems
When your credit score takes a hit, this can ripple through your entire financial life. You may find it more difficult to sign up for a new credit card. If you do sign up for new credit, you may face higher interest rates each month. Finally, you could see your homeowners and auto insurance premiums going up.
Secured Credit Cards An Alternative to Cosigning
Although nothing is as simple as getting a cosigner, there is an alternative. It may help to point the consignee in this direction if you’re not comfortable cosigning for them. Secured cards are a good option for people who have no credit or bad credit. Here are the top 3 secured cards that Credit Fast recommends.
Secured Credit Cards
Although this may not be as easy as co-signing for someone, a secured credit card is a viable option. A secured credit card is a way for someone to rebuild their credit. Also, secured cards are a quick way to get access to a small line of credit with a poor credit history. If you are new to credit compare the best credit cards for young adults to build credit. This way you are building your own credit without needing a cosigner.
It’s easy to qualify for a secured credit card, and a few of them only need a minimum down payment. For example, the Discover it® Secured Credit Card and Capital One® Secured Mastercard® secured cards only need $200 to open a line of credit. They also have no annual fees, and you can upgrade after a year or so of responsible use.
You do tend to start with a lower credit line, but you can increase it with a good payment history. This is a good option if you need money now and you can’t find a cosigner. Secured cards are a good option for people needing to rebuild credit after bankruptcy.
Know All Available Options Before You Cosign for a Credit Card
If someone asks you to cosign for a credit card, carefully consider everything. The last thing you want to do is ruin a relationship or make your financial life more difficult. Offer them a secured credit and give them good reasons why this may be something to check into. You should only cosign if you’re ready for the worst-case scenario. There are other options, and it pays to consider them.
CreditFast has reviewed the best secured credit cards on the market. Some of the credit card offers are from our advertising partners. CreditFast has objectively reviewed the features and benefits of each secured credit card. We have chosen credit card offers based on our editor’s recommendations.