Maybe it’s your son or daughter, boyfriend or girlfriend, best friend, or even your own parents. All of us have someone in our lives with credit problems. If they would like to get a credit card with a cosigner and have asked you to be that cosigner, here are some very important things both of you need to consider…
Victim? Or playing the victim?
I’ve known (and currently know) many people with bad credit. Of course, almost all of them believe it’s not their fault! Each person I know has various excuses and theories to back up their claim (which they truly believe). However from my experience, more often than not that person is usually to blame!
Now I’m not saying everyone who has ruined their credit is at fault. There are circumstances like catastrophic and unexpected medical bills (and insurance wasn’t possible beforehand) and certain job loss scenarios. But often times it was just irresponsible spending that caused the credit problems either in full, or in part (i.e. If someone was living beyond their means before unemployment, they are at least partially to blame for the debt problems which followed).
So who deserves a bailout (a credit card with cosigner) and who should be left on their own? Well, here are three very important things both parties need to consider:
Caveat #1: Both parties will be held responsible
When there are cosigners on a card, both parties will be responsible for all account history that follows… both the good and the bad.
That means late payments, high credit limit utilization, and in the worst case scenario – defaulting – will all affect the cosigner’s credit history, in the same way as if he or she did that on their very own credit card! On the other hand, the person that already has bad credit doesn’t have a lot to lose out on (when it comes to their credit) if these events happen since their credit is already ruined.
So in a nutshell, a credit card with cosigner is a huge risk for the person with good credit, and little to no risk for the one that already has messed up credit.
Caveat #2: Nothing destroys more relationships than money
Okay, I’m not claiming that as a statistical fact, but there’s no arguing that many relationships get ruined due to money issues. Whether it’s a friend or family member, is it really worth risking a healthy relationship just to get a credit card?
Personally, there are many relationships in my life that were ruined because of money. Some are very dirty stories and I’m going to refrain from discussing those in this article. Instead, let me give you one of the simple, “tame” examples:
When I was 20 or 21, I was friends with this kid named Justin who was the same age as me. However to call him a friend may be a stretch, because our relationship was mostly centered around a spec literary project we were working on together for several months.
One day he called me up pleading to borrow money, $50. Not a lot, right? Well, it is if you are unemployed, broke, and living in Los Angeles like I was! Regardless, I gave him the money on the verbal agreement he would pay it back within the next month or two.
In the weeks and months that followed, he never made an effort to pay any of it back. Mind you, he was the one with a steady paycheck, not me! Yet he would frequently tell me about how he was out at a club the night before, or some other costly activity which I couldn’t afford myself. He seemed to always have money for those things… just not any money to pay me back.
Ultimately, our friendship faded into the abyss after several months of this. There was no big fight. There was not even an argument about it. It really just came down to the principle of the situation… if this guy would so blatantly stiff me, is he the type of person I want in my life? Nope.
So that’s just an example of a loose friendship and only $50. But how about when the stakes are higher… a credit card with a limit in the thousands and the cosigner’s great credit history on the line? That’s a storm that has the potential to damage even the best of relationships. Is a credit card worth jeopardizing your relationship?
Caveat #3: A cosigner isn’t the only option
Cosigning is an easy way for someone with bad credit to get a credit card, but it is not the only way.
It’s possible to get a secured credit card, regardless of how horrible the applicant’s credit history is. With these cards, a security deposit is put up when the account is opened – that amount become’s the credit limit. Sure, it won’t be a fancy-shmancy credit card with rewards, benefits and all the bells and whistles, but what it will be is a card that can help rebuild credit if used responsibly.
These cards typically come with fees, but that’s a small price to pay to prevent a relationship from going sour. To learn more about them, check out this section about rebuilding credit.
Before you apply for a card with cosigner, or agree to be a cosigner, think long and hard about what will happen in a “worst case” scenario.