8 Min Read | Published: August 30, 2024
What Is a Cosigner for a Credit Card?
Learn about the role of a cosigner for a credit card. See responsibilities, benefits, and potential risks for both the primary cardholder and the cosigner.
This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
At-A-Glance
If you cosign a credit card with a friend or family member, you’ll be responsible for their debt if they fail to make their repayments.
Becoming a cosigner can be a way to help a friend or loved one to build credit, but it could also put your credit score at risk.
One alternative to becoming a cosigner is adding them as an authorized user to your account.
If your friend or family member has no credit or poor credit, they may ask you to cosign a credit card. While cosigning can be a way to help a loved one build credit, it’s important to understand how cosigning works before you agree. You’ll want to weigh the benefits and risks so you can determine whether it makes sense for your situation. In this article, we’ll dive deeper into what you can expect if you cosign a credit card. We’ll also look at alternatives that you may want to consider as well.
What Does It Mean to Cosign on a Credit Card?
When you agree to become a credit card cosigner, you apply for a credit card with another person known as the primary cardholder. You provide the credit card issuer with your personal credit and income information.
Being a cosigner could help someone qualify for a card that they may not be able to get approved for on their own. However, it’s important to realize that as a cosigner, you’re taking on a great deal of responsibility for the card. If the primary cardholder can’t repay the debt, then the payment obligation falls to the cosigner.1 If the debt ends up unpaid or is paid late, then your credit may be impacted as well.
It’s important to note that most major credit card companies do not allow cosigning anymore, although there are exceptions for student credit cards. Aside from this, cosigning may only be possible with a card from a smaller community bank or credit union.2
Benefits of Being a Cosigner
There are a couple of benefits of being a cosigner on a credit card. The main benefit is that you’ll have the chance to help your loved one build credit.
Here’s a look at how these benefits break down:
- You Can Help a Friend or Family Member
When you cosign a credit card, your friend or family member benefits the most. However, you’ll get the chance to make a positive difference in their finances. If they’re young and don’t have a credit history, for example, you’ll help them build their credit so they can qualify for credit in the future on their own.
- Your Credit May Improve
As long as the balance is continually repaid on time, cosigning could, in theory, help your credit as well. However, if your credit is already high, then any benefit may be negligible.
Risks of Being a Cosigner
There are a few risks involved with being a cosigner, namely, you’re assuming financial responsibility for the account if the primary cardholder is unable to pay. You could be putting your credit at risk as well if the account ends up unpaid.
Here’s a look at the main risks now:
- Your Credit Score May Be Impacted
In a perfect world, all credit card payments would be made on time. If they’re late or missed, however, your credit can take a hit. Also, if the primary borrower defaults on the debt and it’s sent to a collection agency, this information will be included in your credit report for up to seven years and lower your credit score.3
- You May Be Responsible for Unpaid Debt
Ideally, the primary borrower would make all the repayments. In the event they don’t, it’s up to you to make them. If you have a tight budget and can’t come up with the funds, this can be problematic as the debt may go to collections where a debt collector might attempt to collect it from you.4
- It Could Damage Your Relationship With the Primary Borrower
There’s a good chance the primary borrower may be a family member or a close friend. If things don’t go as planned, and they end up defaulting on their repayments, your relationship with them may suffer. Also, your finances will be connected to theirs so things may get uncomfortable if your relationship with them ever changes.5
Does Cosigning Affect Your Credit?
If you co-sign a credit card for a friend or family member, you should be prepared for the chance that you could end up needing to take responsibility for the account. If they spend responsibly and make timely repayments, you have nothing to worry about. But if they end up overspending and struggle to make their repayments or miss them altogether, you’ll be responsible for making them, and it could cause your credit score could go down.6
Alternatives to Cosigning on a Credit Card
If you’d prefer not to cosign a credit card for a friend or family member, here are a few alternative options for them to consider:
- Consider Looking Into a Secured Credit Card
A secured credit card requires a cash deposit, which is typically equal to the card’s credit limit. If the cardholder doesn’t make their credit card payments, the issuer can take their deposit. As long as they use a secured card responsibly, they may be able to build credit, which could help them qualify for a traditional, unsecured card in the future.7
- Add Them to Your Credit Card As an Authorized User
Adding your loved one as an authorized user to your account could be a less risky alternative to cosigning on their account. An authorized user is someone who gets added to the primary account holder’s credit card. They can usually get their own card as well. If their activity is reported to the credit bureaus, then this could help them to build credit.8 While an authorized user’s card activity could still impact you, you’ll typically have more oversight over the process if you add them as an authorized user to your own account.
- Consider a Credit Builder Loan
Some banks and lenders offer credit builder loans, which can help your friend or family member build their credit. If they take one out, the funds they borrow will be set aside for them in a dedicated account. As they make their repayments, the lender will report their payment activity to the credit bureaus. They’ll receive the funds once the loan has been paid back.9
Did you know?
If someone asks you to become a cosigner for a credit card and you don’t feel comfortable with the risks involved, it’s always okay to say “no.” Being a cosigner involves a great deal of responsibility and may not be right for every situation.
Frequently Asked Questions
Cosigning a credit card doesn’t have any direct tax implications. However, it may hinder your credit score if the primary borrower defaults on their repayments.10
When you apply for a cosigned credit card, the credit card company will check your credit score as well as the primary borrower’s score.11
There are some credit cards that are specifically designed for borrowers without a credit history. These include secured credit cards. These cards can be a good way to help build credit, if the cardholder practices good credit habits, including keeping their balance low and paying off their balance on time each month.
The Takeaway
If a friend or family member is struggling to get a credit card, they might ask you to become a cosigner. While this can allow you to help them out financially, it also comes with risks, such as potential credit damage and a strain on your relationship. If you don’t want to cosign for a credit card, there are other options available, such as adding them as an authorized user to your account.
1,8 “What Is a Credit Card Cosigner and Should You Use One?,” Experian
2 “Which Credit Card Issuers Allow a Co-signer?,” Time
3,4,5 “What is a Co-signer?,” Equifax
6 “Should You Co-sign a Credit Card? Why Many Issuers Don't Allow It,” CNBC
7,10,11 “Pros And Cons Of Co-Signing For A Credit Card And Alternatives,” Forbes
Anna Baluch is a personal finance writer from Cleveland, OH. She enjoys helping people from all walks of life make smart financial decisions. Her work can be seen on Credit Karma, Forbes, LendingTree, Insurify, and many other publications. Connect with Anna on LinkedIn.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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