What is a Co-Signer on a Credit Card?

Matt Bicknell

If you’re new to credit cards or have a less-than-desirable credit history, applying with a co-signer may help you qualify for a new line of credit.

A co-signer is any person, usually a family member or close friend, that legally agrees to pay any debts that you’re unable to pay. This person graciously vouches for your creditworthiness as a co-applicant, which assures lenders but puts his/her strong credit score on the line. Many small banks, credit unions, and even a few major issuers (see chart) accept co-signers, making the method a limited but strong option for building new credit.

Co-Signer Policies for Major Credit Card Issuers:

Issuer

Allows Co-Signer?

Details

American Express

No

Authorized Users Allowed

(must be +15yr old)

Bank of America

Yes

 

Barclaycard

No

Authorized Users Allowed

(must be +13yr old)

Capital One

No

Authorized Users Allowed

Chase

No

Authorized Users Allowed

Citi

No

Authorized Users Allowed

Discover

No

 

U.S. Bank

Yes

 

Wells Fargo

Yes

 

How Being a Co-Signer Works

Becoming jointly liable for another’s debts is no small responsibility. The attributes that worry lenders (no credit, bad credit, insufficient income) become risks held by your co-signer, so before signing any papers it’s essential to reach a strong understanding with them on the following:

  • Up or down, your co-signer’s credit score will be affected by your activity. This is your chance to prove your good spending habits, but any missed payments or excess balance will hurt both your scores. This is their account as far as the bureaus are concerned.
  • There is real money to pay back in case of default. If you can’t pay at any point, you co-signer will have to, or face some harsh consequences. Surveys have found that 4 in 10 co-signers end up paying at least part of the debt.
  • Co-Signing can put your personal relationships at risk. The same surveys also found that 26% of people said co-signing damaged their relationship. Money can be an uncomfortable subject, especially if things go south, but you’ll both sleep better if you keep everything honest and open.

Risks, Rewards, and Alternatives

With all risks considered, a co-signer should be someone you completely trust. Co-signing for credit cards is actually a bit uncommon (16% of all co-signs), and it’s most sensible scenario is parents helping kids get their first card. Regardless, both parties should be open on everything from credit history to account passwords. And while the whole process may seem trying, remember that responsible credit-spending will boost both your credit scores if you play it right!

Otherwise, there are other options that might work better for you:

  • Becoming an authorized user
  • Getting a unsecured card
  • Establishing strong financial habits first

The Bottom Line on a Co-Sign

The key to making a co-sign succeed is transparency. At Birch we recommend addressing your financial situation with your co-signer up front and establishing terms of use for your new credit card. Bring answers to important questions like:

  • Why exactly do you need a co-signer in the first place?
  • How much do you plan to spend on the card each month?
  • Do you plan on making an big purchases like a car or mortgage in the coming years?
  • What’s the worst case scenario if you default?

All should lead you to ground your new credit spending in organization and responsibility. For example, the Credit CARD Act of 2009 does not require any cardholder above the age of 21 to notify co-signers of credit line increases, but it’s probably a good idea to agree that you will. Another good idea is to plan on an end date for your co-signer’s responsibilities. After all, the goal is to no longer need a co-signer - so once your credit score is looking good, you can remove the co-signer or close the account to open a new one on your own.

The risks and limits of drafting a co-signer are there for sure, but so are the benefits and practicalities. Keep it responsible, keep it honest, and your co-signer may be the one thanking you.

About the Author

Matt Bicknell

Matt Bicknell is a student at the University of Florida studying Finance. He is an active contributing author for Birch and is passionate about helping newbies become financally savvy.