With credit card companies being ultra-careful about selecting customers, co-signing a credit card is back in vogue. But if you’re asked to co-sign on a card, know the dangers of doing so before you sign on the dotted line.
What kind of dangers are we talking about?
1. You get the debt.
First and foremost, when you co-sign a credit card, any debt incurred could easily ricochet from the cardholder to you. The bank doesn’t care who they get the money from to satisfy a credit card debt, so if they can’t get it from the primary cardholder, take a guess who it will come after next?
There is, after all, a reason why banks demand a co-signor in certain situations. If a card issuer thought it could collect off a cardholder, it wouldn’t need a co-signer in the first place.
2. Increased credit risk.
Besides potentially facing a mountain of credit card debt, you could endanger your credit score by co-signing on a credit card. Let’s say you co-sign for your college-age son, who eventually falls behind on his card payments. If the money isn’t paid, not only is your son’s credit rating heading over a cliff, yours will be too. In addition, if you need a loan someday, and your son is behind on his card debt, creditors may use that debt to deny you a loan.
3. Risk of lawsuit.
Credit card issuers aren’t above using legal means to get their money. So if you sign off on a credit card, and the primary cardholder creates a mountain of debt, you might have to go to court, reveal all your assets, and risk losing them to satisfy credit card debt you didn’t accumulate.
4. You’re an easy mark.
There’s no rule that says credit card companies must go after the primary cardholder in a late-payment or no-payment situation. The mindset for people who co-sign a credit card is that the bank will go after the main cardholder. Not so. The bank will go after whoever it feels like has the best chance of paying off the debt. That could mean threatening letters, harassing phone calls and e-mail badgering.
What are your alternatives?
To mitigate any potential damage, agree to get a "secured" card in your name and give it to your son or daughter. Co-signing a credit card for a friend or co-worker is off limits. Keep it in the family, if you’re going to take the co-signing route at all. In this case, blood really is thicker than water. A secured card has limits on how much you can spend and, increasingly, more card issuers have set up Web sites and even e-mail notices that let parents know when their kids use the card and if they’re approaching the maximum balance limits.
If you’ve already signed off on a card, and can’t get the money of the primary cardholder, face the fact that you’re going to have to address the debt yourself. Start by contacting the card issuers and offering to settle the debt for 50, 60 or 70 cents on the dollar. You’d be surprised how many card companies will take you up on the offer. Credit card issuers are bleeding cash these days, and may be eager to get some money out of you and clear the books for good. Chances are you’ll have to close the card down, but that just makes it a "win-win" situation for you.
Co-signing a credit card is a tough call, especially when emotions get in the way when a son or daughter is involved. Avoid it as best you can, and keep harmony all in the family.
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