5 Rules To Establish Before Co-Signing



As adults we know money doesn’t grow on trees, but our youngsters don’t always seem to get it. Under the Credit Card Act, which became effective in February 2010, students will need a co-signer unless they have an acceptable source of income. This new law was created to protect students and young adults from getting into credit card debt. So how is the co-signer protected? Well that is up to the co-signer. Unfortunately, when you agree to co-sign you are taking a risk, your risking your own credit. That’s why co-signing should not be taken lighting and there should be some ground rules established first.

If you do decide to co-sign for a credit card there are several things you need to keep in mind. First and foremost is that as a cosigner you may end up making the payments if the card holder fails to do so. It is very possible the the cosigner’s credit will be negatively affected if the account is not managed properly. When you co-sign the credit history of the account shows up on the cosigner’s credit, missed payments and all. Keep in mind co-signing has the potential to damage family and friend relationships. The best way to have a successful co-signing experience is to set some rules up before you sign on the dotted line.

5 Co-Signing Rules

  • Consider paying the bill yourself: The best way not to ruin your credit score is for you to pay the bills (and pay them on time) and then have the card user pay you. I know this complicates things a bit but at least the bills will be paid on time. Once the account holder proves they are responsible then turn the bill over them, but test it out first>
  • Use this as a learning lesson: Take this time to teach the importance of a good credit score. If this is your young student then you definitely want to get them off to a good start with building their credit history.
  • Strict rules about never going over the credit limit – It seems like young kids don’t completely get the importance of properly managing your accounts so you don’t exceed the account limits. This should absolutely be a number one rule for the user.
  • Never carry over a balance – This could possibly be the most important rule of using a credit card responsibly. This will help protect you as a co-signer and teach good habits.
About Michal Cheney

Michal Cheney is a personal finance blogger who writes for several top personal finance blogs, such as Dough Roller and Go Banking Rates. She enjoys writing about money management, getting out of debt and planning for retirement. Her practical approach encourages folks to get serious about their relationship with their money.

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