What to Know About Using a Credit Card Cosigner
Typically, to qualify for a new credit card, you need to meet the card issuer’s underwriting requirements — including the minimum credit criteria. If you don’t have a long credit history or a strong credit score, asking if someone can cosign for a credit card for you can help you get approved.
However, this type of arrangement should be approached cautiously for various reasons. Before getting a credit card with a cosigner, here’s what you need to know.
What Is a Credit Card Cosigner?
A credit card cosigner is an individual who agrees to be responsible for a primary cardholder’s debt. If the primary cardholder fails to make payments or defaults on their debt, the cosigner is expected to assume their financial burden by repaying the outstanding debt, regardless of the circumstances that led to the account’s status.
Because of how a credit card works, a cosigner should ideally have a strong credit score and a solid credit history.
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Why Might Someone Need a Cosigner to Open a Credit Card Account?
A person might decide to secure a cosigner for credit card applications if they have less than a “good” credit score (meaning below 670). This is because applicants who don’t have strong credit might find it harder to get approved for a new credit card at a low APR.
Additionally, credit card applicants must meet age requirements to get a credit card. Applicants who are under 21 years old are required to secure a cosigner if they can’t prove their ability to repay the card using their own income. This credit card rule from the Credit Card Accountability Responsibility and Disclosure Act of 2009 — also known as the Credit CARD Act — was designed to avoid predatory lending practices toward young cardholders.
Even if an applicant is 21 or older, they might need a credit card cosigner if they don’t have sufficient income. Keep in mind, however, that many credit card companies don’t allow for cosigners, so searching for one that does could increase the amount of time to get a credit card.
Parties Involved in Cosigning a Credit Card Account
Aside from the credit card issuer, there are two parties involved when opening a new credit card with a cosigner: the cardholder and the cosigner.
The Credit Card Holder
The individual who is the primary cardholder is the person whose income, age, or credit doesn’t meet the card issuer’s minimum requirements. If they successfully acquire a willing cosigner for a credit card application, the account is under the cardholder’s name. The cardholder is also the individual who will receive the physical credit card to use toward purchases.
As the primary cardholder, they’re still considered the first party that’s responsible for making on-time monthly payments for at least the minimum balance due.
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A cosigner is an individual who meets the card issuer’s underwriting requirements. They provide a financial guarantee that vouches for the cardholder. This financial responsibility is taken on by the cosigner as soon as the credit card application is approved.
Typically, cosigners don’t enjoy the perks of using the physical credit card. They don’t have access to the credit line, nor do they have ownership of the goods that were paid for using the credit card.
However, if the cardholder fails to pay back their credit card debt, the card issuer will immediately seek payment from the cosigner. Credit card companies can also report late payments and default notices to the credit bureaus, and those updates will adversely impact a cosigner’s credit score and appear on their credit report.
Pros and Cons of Credit Card Cosigning
As mentioned previously, there are reasons to approach becoming a credit card cosigner with caution. However, there are positives to cosigning as well.
|Pros of Credit Card Cosigning||Cons of Credit Card Cosigning|
|Helps the primary cardholder access a credit line they otherwise may not qualify for||Cosigner is responsible for unpaid credit card debt they did not accumulate|
|Allows someone under the age of 21 without regular income to access a credit card||Might affect a cosigner’s access to new loans or lines of credit since a cosigned credit card impacts their debt-to-income ratio|
|Positive credit card activity is reported to credit bureaus for both the primary cardholder and cosigner||Late payment activity and default is reported to credit bureaus for both parties|
|Helps secure a lower credit card APR for the primary cardholder||Card issuers can send unpaid debt to collections, sue cosigners, or request wage garnishment or property liens against the cosigner to collect on the debt|
|Poor borrowing and repayment habits can negatively affect the relationship between the cardholder and cosigner|
Credit Card Cosigner vs. Authorized User
Getting a credit card with a cosigner is different from being added as an authorized user on a credit card under someone else’s account. A cardholder can choose to add an authorized user to either their new or existing credit card account.
Authorized users can get their own physical credit card with their name on it. They can use the card to pay for goods and services, in the same way a primary cardholder uses the card.
However, unlike a cosigned credit card, the authorized user doesn’t have any legal responsibility to repay the debt they’ve put on the card. In this arrangement, the primary cardholder still bears that responsibility. Still, any account activity — whether positive or negative — impacts the primary cardholder’s credit as well as that of the authorized user.
This option is often used to help someone build their credit or simply access borrowing power. For example, parents may add their child as an authorized user on a credit card.
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Credit Card Cosigning vs. Joint Accounts
Cosigners don’t have access to the line of credit. Through a joint account, however, both parties have equal borrowing power through the credit card, as well as equal financial responsibility for the debt incurred. In other words, both parties are responsible for paying outstanding balances on the credit card — even if the purchase was made by only one person.
Joint accounts are commonly used by individuals who share other financial responsibilities together, such as spouses, family members, or business partners. Since the account is shared and both parties are liable for the account, both of their credit scores and credit reports are impacted by the card’s activity.
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Alternatives to Cosigning a Credit Card
Outside of the above options, there are a couple of alternatives to applying for a credit card with cosigner support.
• Secured credit cards: Secured credit cards are a useful credit-building tool for primary cardholders who would otherwise not qualify for an unsecured card. Credit card requirements for a secured credit differ a bit, as a deposit is needed that acts as collateral and usually becomes the card’s credit limit. The deposit is returned when the account is closed.
• Guarantor loans: Unlike a cosigned credit card that holds the cosigner responsible for the debt from the start, a guarantor loan only puts legal responsibility on the cosigner if the lender has exhausted all other options through the primary borrower. This marks a major difference between a guarantor and cosigner. Plus, a fixed loan is a known quantity of debt, rather than a revolving line like a credit card is.
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Becoming a credit card cosigner or asking someone to cosign a credit card is a huge responsibility that poses significant risk for the cosigner. Only consider this route if both parties — the primary cardholder and cosigner — understand the implications and can financially handle the debt that’s put on the card.
If a credit card that allows an authorized user is a better option for you, consider getting a credit card with SoFi. Qualified SoFi cardholders can add an authorized user to their account. Purchases made by both the primary cardholder and their authorized users earn cash-back rewards.
Apply for a SoFi Credit Card online today!
What is the minimum credit score for a cosigner?
Cosigners typically need a minimum credit score of 670, which is considered “good” based on the FICO credit scoring model. Credit requirements, however, vary by card issuer. Before securing a cosigner for a credit card, ask the issuer about its cosigner criteria.
Can I cosign for a credit card with my child?
Some credit card issuers allow parents to cosign on a credit card for their child. However, not all issuers provide this option. If the desired card issuer doesn’t permit cosigners, another option is adding your child as an authorized user on your personal credit card.
Is it possible to get a credit card with a cosigner?
Technically, yes, it is possible to get a credit card with a cosigner. However, this option isn’t always offered by major credit card companies.
Whose credit score is impacted with a cosigned credit card?
If the primary cardholder is late on their payments or defaults on the credit card debt, the cosigner’s credit is adversely affected. Additionally, the cosigned card is considered another open account on the cosigner’s credit record so it can impact their ability to secure their own loans, if needed.
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