Everything You Should Know About Credit Card Cosigners

Introduction

Building credit can be challenging, especially if you’ve never had it or you’ve experienced credit issues in the past. You need a good credit history in order to get credit — and yet you need credit in order to establish that credit history. So how do you get around this frustrating catch-22?

One traditional option has been to add a cosigner.

But the truth is that you can’t easily do this anymore. Let’s take a look at why — as well as what types of loans do accept cosigners, which credit cards may still allow it, and alternatives you could look at instead.

What Is a Cosigner?

A cosigner on an unsecured loan or credit card is someone who legally agrees to be held responsible for paying the debt if the primary account holder defaults on it.

An unsecured loan or line of credit is based on creditworthiness rather than collateral, so this is usually a case of someone with better credit agreeing to be responsible for someone with a lower credit score. Often, the person looking for a cosigner wouldn’t otherwise be approved for the credit card or loan.

The name is misleading because it sounds like a partnership between two people — similar to coauthor, co-owner, or co-borrower. But unlike a joint account or joint credit card, where both parties have access to funds or can make purchases, a cosigner typically doesn’t get any financial privileges or benefits from the account. They’re just lending their good credit standing to someone who needs it.

Why Would Someone Need a Cosigner for a Credit Card?

The main reason you might want or need a cosigner on a credit card (or a loan, for that matter) is that you can’t qualify on your own.

The history of credit card cosigners

Back in the ‘80s and ‘90s, credit cards were heavily promoted to college students looking for financial independence — which often did the opposite, and buried them in debt. The Credit Card Accountability Responsibility and Disclosure Act (Credit CARD Act) of 2009 responded with some rulings to protect young consumers. That included regulations around on-campus marketing and restrictions on allowing anyone under the age of 21 to get credit cards.

You can technically still get a credit card at the age of 18, but it became more difficult after the Credit CARD Act came into effect. The new guidelines stated that young adults between 18 and 21 could only get a card if they either a) had a cosigner, or b) could provide proof of income that established their ability to pay back the debt.

But over the next decade, more and more creditors dropped the option to have cosigners on credit cards. Today, it’s pretty much impossible to find a major credit card that still allows this — although you may come across the occasional small bank or local credit union that does.

The cosigner option for loans

Even though it’s not likely to happen on a credit card, you can still use a cosigner on many personal loans. So if you don’t qualify for a credit card, you could possibly get a personal loan to purchase what you need and build your credit history.

In this case, a cosigner would give you an edge that might allow you to be approved for that loan. If you’re still building or rebuilding credit, a cosigner can help you get higher approval rates, bigger credit lines, and better overall terms.

Who Makes a Good Cosigner?

You could make the argument that any cosigner is a good one. They help you get a loan and take on all the financial responsibility? Ka-ching!

But no, this is something you should take seriously, because it’s a big ask.

A good cosigner candidate should ideally be three things.

• They should trust and believe in you. Your cosigner needs to have confidence that you’ll pay your debt reliably and on time, because otherwise they’ll be held responsible for your outstanding balance. 

• They should have good credit. Unless your cosigner’s credit is better than yours, adding them as a cosigner won’t likely improve your chances of getting approved. 

• They should be financially stable. If the worst-case scenario happens, and you default on the loan, your cosigner should be able to take over the payments or pay off the outstanding balance without going into debt themselves.

Tips Before Approaching a Cosigner

Of course, when we’re talking credit cards, this scenario is rarely (if ever) going to come up. But if you’re applying for a loan, or by some twist of fate you do find a credit card that allows a cosigner, you should consider a few things before making the request. 

• Are you sure this person would be happy to vouch for you without feeling pressured into it? 

• Can you commit to making all your payments on time so your cosigner doesn’t have to take over the debt? 

• Are you prepared for the repercussions, like possibly damaging the relationship, if anything goes wrong?

Once you’ve gotten clear on the possible outcomes, ask yourself if you still think it’s a good idea to make the request. If the answer is yes, approach your potential cosigner by being honest and laying out all the details. Make it clear that you’ve thought this through, and you promise not to let the situation go sideways.

The Benefits of Having a Cosigner

Everything has pros and cons. And when it’s possible to have a cosigner, each party can receive some benefits. But the drawbacks are mostly for the cosigner rather than the borrower or lender.

Advantages of using a cosigner

We could consider this a win-win-win scenario in many cases.

• The borrower wins by increasing their chances of getting credit they couldn’t easily secure on their own. 

• The cosigner wins by enjoying the satisfaction of helping someone they care about.

• The lender wins by minimizing the risk of default and feeling more secure about extending credit.

Disadvantages of using a cosigner

On the other hand, this arrangement carries a lot of risk for the cosigner.

• The cosigner is liable for the debt if the primary account holder doesn’t pay, even though the cosigner doesn’t have access to the funds. 

• The cosigner’s credit could be damaged if the borrower misses payments or defaults completely, because negative line items usually appear on both credit reports. 

• The cosigner may give up credit of their own because other lenders will consider that cosigned obligation when making a decision. 

• The cosigner can’t easily be removed from the account after committing, even if they decide it was a horrible idea.

As the borrower, you can also lose out if you default on the loan and your cosigner refuses to pick up the slack. Both of you would end up with a defaulted loan or charged-off credit card on your credit report, and you wouldn’t have that financial safety net anymore.

Alternatives To Having a Cosigner

Let’s say you don’t have anyone willing and able to vouch for you by being a cosigner, or you’re trying to get a credit card that doesn’t even allow cosigners in the first place.

Luckily, if you’re having a hard time getting credit, recruiting a cosigner isn’t the only option.

• You could be a co-borrower, which means opening a joint account. In that case, both parties have equal rights and responsibilities — although many creditors no longer offer joint accounts either. 

• You could become an authorized user on another person’s account. Authorized users get their own credit card on the primary cardholder’s account, so they can make purchases with it — but they’re not responsible for the payments.

Of course, you’ll still find pros and cons to being or having an authorized user on a credit card.

Advantages of being an authorized user

Being an authorized user comes with some benefits, but they’re not always what people think.

• Authorized users aren’t responsible for any outstanding balances on the account, including purchases they make. 

• You may be able to build your credit history by piggybacking on someone else’s positive payment habits. However, that only happens if the lender reports the authorized user to the credit bureaus, which many of them don’t.

• You get access to a credit card, which can be helpful even if it’s not allowing you to build your credit history.

• The primary account holder may feel good about helping you have — and possibly build — credit as an authorized user.

Disadvantages of being an authorized user

It might seem like the perfect scenario for you, but being an authorized user also has some drawbacks.

• Your credit can be damaged if the primary cardholder defaults or misses payments and the lender does report the authorized user to the credit bureaus.

• An authorized user typically has no authority to make account changes or ask for a credit line increase. 

• The primary cardholder can remove you as an authorized user at any time.

What’s the Difference Between a Cosigner and an Authorized User?

There’s actually a huge difference between a cosigner and an authorized user. In fact, they’re kind of the opposite things. 

• A cosigner is someone (like a parent or earning spouse) who agrees to vouch for a borrower. 

• An authorized user is someone (like a child or non-earning spouse) who piggybacks on the account of a primary cardholder.

In other words, a cosigner is typically a responsible party with good credit who can give your credit or loan application a boost. The cosigner doesn’t get access to the funds, but takes on all the responsibility if the primary borrower defaults on the loan.

On the flip side, an authorized user is someone who may not be able to get their own credit card, but has a relative or friend who provides a credit card on their account. An authorized user is never responsible for the credit card account — that falls to the primary cardholder.

However, both scenarios involve one person who typically has better credit (the cosigner or the primary cardholder) allowing another person to benefit (the primary borrower or the authorized user).

Here’s a breakdown of the key points:

And we might as well revisit joint accounts here too. If you’re a co-borrower with someone else on a joint account, both of you have equal access to the account, and both of you are equally responsible for the debt.

Bottom Line

Asking someone to be a cosigner on a loan (or possibly a credit card) isn’t something you should take lightly. And it’s not something a cosigner should agree to without considering the risks.

If you’re in a situation where adding a cosigner seems like your only option, a better idea might be to work on improving your credit score. You can start with a rebuilding credit card designed for people who have credit challenges.

But if you get the opportunity to use a cosigner, or decide to be someone’s cosigner, choose wisely. It’s a decision that could affect both of your credit scores for many years to come.