To get approved for a credit card, you typically need at least a good credit score and a decent amount of credit history. But if you have limited history or poor credit, applying for a credit card with a co-signer may increase your chances of approval. A co-signer is someone like a family member or friend with good credit who shares responsibility for any outstanding payments. When you apply with a co-signer, there’s less risk for the issuer.
[READ: Best Credit Cards for No Credit.]
What Is a Co-Signer?
Co-signers act as a protective measure for financial institutions. If you can’t qualify for a credit card on your own, adding one may help.
“A co-signer is somebody who is responsible for the debt or the loan with you. … So if you as the borrower go delinquent, then it would be the responsibility also of the co-signer to pay that loan back,” says Daniel Cohen, founding partner of Consumer Attorneys, a law firm that helps people fix mistakes in their background checks and credit reports. “So really, they’re to protect the bank or the lender in the event of a default.”
Who Can Qualify as a Co-Signer?
Not just anyone can qualify as a co-signer. Since the co-signer is backing the credit card, they must meet certain eligibility requirements set by the financial institution.
“A co-signer really needs to have a much stronger credit score position and really 680 would be the minimum,” says Renee Jones, vice president of product management at Georgia’s Own Credit Union. “They should have sufficient income and a DTI (debt-to-income ratio) of no more than 30%.”
Do Any Major Credit Card Issuers Allow Co-Signers?
If you want to apply for a credit card with a co-signer, it may be difficult. The majority of major credit card issuers don’t allow co-signers.
[Read: Best Credit Cards for Bad Credit.]
Co-Signer vs. Authorized User
While most major credit card issuers don’t allow co-signers, many allow authorized users. An authorized user refers to someone who is added to a primary cardholder’s account and has permission to make purchases. Typically, this person may be a child or spouse.
Authorized users receive their own credit card to use for spending, but the primary cardholder is the one responsible for all the payments. The spending activity for the authorized user is typically reported to the major credit bureaus — Experian, Transunion and Equifax — but it’s a good idea to check with the credit card issuer to make sure. This can be a convenient way to access credit and build up some credit history.
And authorized users aren’t legally responsible for payments if the primary cardholder stops paying, as a co-signer is.
Co-Signer vs. Joint Account
Joint credit card accounts allow two parties to share access to credit and responsibility for payments. For example, spouses may use a joint account to consolidate and streamline spending. In this case, the name of each owner is on the account, and credit activity is reported on their credit reports.
Co-signers don’t have equal access to the primary cardholder’s account. They’re not authorized to use credit but are on the hook for payments if the account is in default.
“A credit card typically gets charged off within 180 days. What that means is that internally, they consider the debt uncollectible once 180 days passes,” says Cohen. “And at that point, they will escalate their collection efforts. … I don’t know that they will typically call the co-signer for a credit card in that situation, but once it goes to a third-party debt collector or goes to an attorney who would file a lawsuit in court, they have the right to sue the co-signer on that debt as well.”
[READ: Best Credit Cards for Beginners]
Where to Apply for a Credit Card With a Co-Signer
If you’re interested in applying for a credit card with a co-signer, you’ll have limited options. While most major credit card issuers don’t accept co-signers, here are some places to look.
Local Banks and Credit Unions
You may have more luck with local banks and credit unions if you’re looking for a credit card with a co-signer.
“We do allow co-signers, and we do still offer that as a solution,” says Carma Peters, president and CEO of Michigan Legacy Credit Union. Additionally, the credit union allows for co-signer release, which means the co-signer can be removed from the account and their responsibilities once certain requirements are met. Typically, a financial institution will require a specific number of on-time payments before this option is available.
Co-Signer Alternatives
It may be tough to find a credit card issuer that allows a co-signer. If you do find an option, you still have the difficult task of finding a co-signer willing to take on that risk.
“That person who’s deciding to do it has to really think about why they’re doing it, what is the ability of the person that they’re co-signing with, what is their ability to pay, and they should always be prepared to pick up the weight and stand in in case that individual can’t,” says Jones.
If you can’t find or use a co-signer, there are some co-signer alternatives to consider.
Authorized User
Becoming an authorized user on someone else’s credit card account can be more manageable. You get access to credit and can build some history. Since primary cardholders are responsible for making payments, discuss payment arrangements or negotiations ahead of time.
Using specific credit cards, primary cardholders may be able to implement a spending limit. For example, American Express allows you to set a limit of $200.
Joint Account
Getting a joint account can be a good alternative to adding a co-signer. Be aware that the credit card issuer will consider each party’s credit history. So if you’re relying on the other person’s credit score for approval, make sure it meets the issuer’s eligibility requirements. If the person has a good credit score, this can be one way to unlock more favorable credit card terms.
Secured Credit Card
Another option is a secured credit card. These cards require applicants to put down money, which serves as their credit limit. The funds secure the card and act as collateral, reducing the risk for credit card issuers. In other words, your cash deposit can be taken if you fail to make payments. The money you use for the cash deposit is typically refundable after you meet the issuer’s eligibility requirements.
Before applying for any credit card, know what you’re getting into. “Read your disclosures because it will answer a hundred questions you never have to ask, and there will be no surprises,” says Peters. “I know fine print is a pain to read, but there’s so much information in there about when your payments are due and when you’re going to be assessed any fees.”
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What Credit Card Issuers Allow You to Have a Co-Signer? originally appeared on usnews.com
