What to do instead of co-signing on a credit card

In the past, applying for a credit card with a co-signer — another person who agrees to share responsibility for charges made on the card — was a common way to increase your credit card approval odds. However, most major credit issuers have phased out this option, which means you can no longer use a credit card co-signer to build a positive credit history.

The good news is that there are several, often better, options available to you instead if you’re looking to boost your credit quickly.

Reasons you should avoid co-signing on a credit card

It sounds like a nice thing to do. Just sign your name, and a friend or relative will gain access to credit. However, being a co-signer is not that simple.

Here are several risks included with this process:

• You are responsible for all charges made on the card

  When you agree to co-sign for a credit card, you’re telling the credit card issuer, “If anything goes wrong, I’ll pay the balance. All of it. Plus interest and any penalty fees.”

  You (or the person with good credit) promise to pay the entire bill because the lender doesn’t think the applicant is entirely up to the task. The lender has seen the applicant’s credit report and financial information and has determined that the person does not have the necessary credit to maintain the account on their own.

• The extra debt could affect your ability to get new credit

  Are you planning to buy a home or take out a loan for a large purchase? Lenders will look at your debt load before determining your eligibility and interest rate — including the co-signed account.

  If this card pushes you into the danger zone in the eyes of your creditors, you risk paying higher interest rates on your credit cards and any future loans — and your next credit card application might even be denied.

• Your credit score could go down

  Does being a co-signer affect your credit? Yes. It can lower your credit score and it might even cause long-term damage to your credit history.

  If your friend or relative uses a significant chunk of the available credit on a co-signed card, it could lower your score even if the account holder makes on-time payments every month. Or, if the account holder makes late payments or begins missing payments, their actions will also show up on your credit report.

• The account holder could increase the credit limit without your consent

  The Credit Card Accountability, Responsibility and Disclosure Act, or Credit CARD Act, mandates that while the account holder is younger than 21, the co-signer has to give written permission for any credit limit increases, says Chi Chi Wu, Staff Attorney with the National Consumer Law Center.

  However, once the cardholder is past the age of 21, no federal law requires that the co-signer be notified of any credit line increases, she says.

• If you want out, you might have to close the credit card

  Often, ending the co-signing arrangement requires closing the card account. Closing a credit card account has a few downsides, and closing a co-signed credit account adds one more wrinkle.

  Depending on the contract and your state laws, you may need the cardholder’s cooperation. It may not be as simple as telling the card issuer you want out. Plus, any unpaid debts accumulated while the co-signed account was open are still your responsibility, even after the account is closed.

Alternatives to becoming a co-signer

If you have bad credit or limited credit history, here are a few other ways to build credit without being a co-signer.

Become an authorized user

One of the best ways to build credit quickly is by becoming an authorized user of another person’s credit card. When you become an authorized user, you receive authorization to make purchases on another person’s credit account. The account owner is responsible for all payments and any debt incurred.

Most credit card issuers report authorized user accounts to the three major credit bureaus (Experian, Equifax and TransUnion). This means that becoming an authorized user is an easy way to piggyback on someone else’s good credit while building your credit score, especially if you’re a student or young person who isn’t old enough to open a credit card.

Apply for a secured credit card

If you want to apply for a credit line without becoming an authorized user or looking for a joint credit card, consider applying for a secured credit card. These credit-building cards require a small security deposit that is usually equal to your initial line of credit, allowing you to prove that you can handle credit responsibly.

Once you’ve demonstrated your ability to make on-time payments and manage your line of credit, most credit card issuers will return your security deposit and graduate you to an unsecured credit card.

Consider credit cards for people with limited credit

Want more options? You might want to look at our lists of the best credit cards for people with bad credit and credit cards for people with no credit history. Many of these cards are secured credit cards, but these lists also include unsecured cards designed for people with fair credit.

The bottom line

Even though most major credit card issuers no longer allow credit cards with co-signers, there are still ways to build credit even if you have a low credit score or a limited credit history.

Consider becoming an authorized user, applying for a secured credit card or looking for a card designed to help people build credit. Once you have a line of credit, practice responsible credit habits to establish a positive credit history and build your credit score.