When you sign that credit card contract, you're saying, "If anything goes wrong, I'll pay the balance. All of it. Plus interest and penalty fees."

You're not acting as a reference. You're not "loaning out" your good credit. You're not promising to tell bill collectors where to find the account holder. You're not offering to split the bill or help them catch up if they fall behind.

You, (the person with good credit) are promising to pay the entire bill because the lender doesn't think the applicant is quite up to the task, says Ulzheimer. The lender has seen the applicant's credit report and financial information.

Ask why the individual needs a co-signer, he says.

• If his credit is bad, that means he doesn't have a good record with past debts. That's not a good sign for you.
• If her income isn't high enough to qualify, that tells you upfront that she probably doesn't have enough money to meet current bills plus this new one, Ulzheimer says.
• Younger than 21? Students aren't barred from getting cards, he says. They simply can't get them if they don't have the income to pay the bills.