Credit card co-signing refers to getting someone with a good credit score to cosign a credit card for you. To answer the question, yes, you can have a cosigner for a credit card. The cosigning person in this case, would legally take responsibility for your debt liability in case you fail to pay your credit card bills. You’d typically want to have a cosigner when your credit reports show poor scores.
There’s many ways you can mess up your credit score and end up in a situation where getting a new credit card might be difficult. These include debt default as well as filing for bankruptcy. This is because these situations make creditors skeptical of your financial ability to make debt payments.
So, creditors are generally wary of issuing credit cards to people with bad credit scores. Your credit history determines your future credit and bad credit can not only cost you your credit card but can also be an obstacle for you to get a new one.
Another reason why you might have a hard time getting your hands on a good credit card is you have no credit history on your reports. These are the situations where co-signing comes in. It can allow you to build or repair your credit worthiness to improve your ability to get better credit cards.
What Credit Card Score Does a Cosigner Need to Have?
Since cosigning compensates for a bad credit score for the person who needs a credit card, the co-signer needs to have an impressive credit score which generally falls in the range above 670. In addition to having a good credit score, the cosigner also needs to show that they can cover the debt of the person they’re cosigning for as well as their own debt.
The creditors could determine the cosigner’s debt paying capability by reviewing their income as well as their debt to income ratio. Debt to Income ratio is calculated by dividing their debt to their income. The rule of thumb for debt to income ratio is that it should be below 35%.
Which Credit Card Issuers Allow Co Signers
When it comes to cosigning, not a lot of creditors are generous enough and there’s only a few options. As of now, only Bank of America (NYSE:BAC) and US Bancorp (NYSE:USB) allow co-signing for credit cards.
Alternatives to Cosigning
If you can’t find a co-signer or can’t find a creditor that allows cosigning then there’s a number of alternatives you can opt for.
1- Authorized User
Authorized usage is one of the foremost alternatives to cosigning. You can apply for authorization to use someone else’s credit card (with their consent of-course). It could be your spouse, parents or adult children and even friends.
It differs from cosigning in that you’re not liable to pay credit debt and responsibility squarely falls on the original card holder unlike in cosigning where co-signer only becomes liable to pay your debt when you cannot pay it yourself.
Whether or not authorized usership can affect your credit depends on whether the original holder shows up authorized users in their credit reports and whether they’re reviewed by credit bureaus.
2- Secured Credit Card
A secured credit card is probably the best option if you cannot avail cosigning and authorized user options. Secured credit cards safely allow you to build credit from scratch. Secured credit card issuers require you to deposit a collateral as a security and assign you a reciprocating credit limit.
If you can’t pay your credit bill and your account defaults, your security will be seized by creditors. If, on the other hand, you successfully build your credit by using credit score best practices, the creditor can switch you to an unsecured credit card and you can withdraw your security.
3- Joint Credit Card
A joint credit card is another option you can choose if you’re having a hard time looking for a cosigner or authorizer. Two people are allowed to share a credit account for a joint credit card option.
Unlike authorization and cosigning, you’d be sharing the credit score with your credit card partner for approval of the application. So it’s an attractive choice if you have some credit score but it is not enough on its own for approval. You’d also need to share bill payment as well as credit score points after the application is approved.
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