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Opening your own credit card can be a challenge when you’re first starting out or if you have damaged credit. In both scenarios, the issuer takes on a fair amount of risk. With no credit history to check, they won’t know what kind of borrower you are. If you have bad credit, it will be hard to have confidence that you will treat this account well when you have faltered in the past. For this reason, you may be wondering if a co-signer who has good credit can come to the rescue.
Here is what a co-signer can do, what the downsides to this arrangement are, and what your options are when you want to have a credit card of your own. In fact, surprisingly few issuers allow co-signers. But if you look hard, you may find one.
What is a co-signer?
When you open a credit card account, there is typically one person on the contract. You. In that scenario, the contract is between you and the issuer. As the cardholder, you are the person who is completely responsible for managing the account. If you falter and the account goes delinquent—or if you run up a large debt that pushes the credit utilization ratio out of whack—only you will suffer the credit rating consequences. And if the account goes very delinquent, the issuer can either sue you for damages or send the debt to collections. And if the collection agency isn’t repaid, it can file a lawsuit as well.
A co-signer acts as the other account owner and can be your gateway to an account when you can’t qualify on your own. That’s the good part. Accepting a co-signer, however, means your behavior will affect not just your credit rating, but theirs.
Because the issuer used your co-signer’s credit rating and financial information to grant the card, paying the bills is both of your responsibilities—equally. You don’t share the account 50/50. If you were supposed to pay the balance and don’t, the issuer has the right to go after your co-signer for complete payment. Meanwhile, both of your credit histories and credit scores will be negatively affected because the issuer will report the activity on your respective credit reports.
Be aware, though, if someone co-signs on the account for you, you will be the primary account holder. As such, your name will be on the statement and bill. In some situations, you will also be the only person who can use the card to make charges.
Which major credit card issuers allow co-signers?
If you want to work with a major credit card issuer with the assistance of a co-signer, you're currently out of luck. While this used to be a common option, none of the biggest card issuers allow co-signers at this time.
The main exception to this rule is for student credit cards, where a credit-worthy adult will sign the application with the student who is enrolled in college.
Instead, major credit card issuers have switched to letting people piggyback on other peoples’ accounts as authorized users. As an authorized user, you have no legal responsibility for the account, but you will have a credit card of your own that you can use to make charges. The account will show up on your credit report as well as on the account owner’s report. In fact, it can be a great way to create or re-create a credit file, since you would bear no responsibility except for managing it according to the account owner’s rules.
What are your alternatives?
If you want a credit card where you as well as another person is an owner and don't mind straying from the major credit card issuers, your options expand. Here are some avenues to explore:
Small banks
Smaller, regional banks often have more flexible underwriting requirements than the major credit card issuers. Look for those in your area that cater to your community.
PNC Bank, which is headquartered in Pittsburgh, Pennsylvania, for example, offers co-signed credit cards to qualified customers. Although this bank doesn’t have branches in every state, anyone can apply.
Credit unions
Credit unions are nonprofit financial institutions that are similar to banks, and many issue credit cards. When you become a member, you are a stakeholder. As such, credit unions tend to be much more forgiving for first-time credit card applicants as well as for members who are trying to rebuild after credit challenges.
BCU Credit Union, headquartered in Fremont, California, allows members to open co-signed credit cards.
Joint account
Similar to co-signed accounts, joint accounts do not have a primary owner. Rather, both people would have equal access to the card as well as having their names on the account statements. Joint owners can be added to the account after it's been opened.
There aren’t many major issuers that offer joint accounts, though U.S. Bank does.
Alternatives to Co-Signed Accounts
Secured credit cards
For people who have a difficult time opening a credit card, because the issuer perceives them to be too much of a risk, secured cards can come to the rescue. The money you put down as collateral guarantees the credit line. Since the issuer can collect the money that is owed in the event the account goes delinquent, they are much easier to obtain. An advantage of secured cards is that you can work with a major issuer, too, such as with Capital One.
Credit cards for no credit
And then there are credit card accounts that are specifically created for people who have no credit history. There are plenty to choose from.
TIME Stamp: Having a co-signer is possible, but it isn’t the only way to obtain a credit card
Whether you're just starting out in the world of credit or beginning again, a credit card in your name is usually a good idea. With it, you can develop a positive credit history when you pay on time and keep the debt low, and enjoy all the benefits associated with these products. Over time your credit scores will rise, and your options for other credit cards will increase.
Frequently asked questions (FAQs)
Do secured credit cards show up on credit reports?
Most secured credit cards are reported to the three major credit bureaus, but it pays to check first.
How long does it take to build credit with a credit card?
An account that you have in your name will show up on your credit report as soon as it is opened. With at least six months worth of on-time payments, your score will steadily rise.
Should I close my starter credit card before getting another credit card?
It is best for your credit score to keep older accounts active. This is because the length of your credit history can account for anywhere from 15% to 20% of your overall credit score, so it is important to maintain good relationships with your creditors.
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