Should you co-sign for a credit card? You’ll need to think long and hard about whether or not to take this action as it’ll have long term implications on your own credit history. You’ll need to decide whether you want to help a friend and balance that with the potential bad debt that might appear on your record without you knowing what’s happening.

Essentially, when you decide to co-sign for a credit card, you’re taking over not only the responsibility to meet the credit card payment each month, but also of clearing the entire debt. This is because you are both responsible for clearing the debt even if it’s your friend who builds up the debt and then cannot clear it.

You’ve got to be prepared to have potential damage to your own credit history and the possible letters from the bank’s collections department or making arrangements with a debt settlement company, just because you thought you’d help a friend.

If you do decide to co-sign for a friend, you’ll need to set guideline rules about the use of the credit card. In fact you’ll need to decide what level of credit should go on the card, how it is to be repaid (and that includes interest if the full debt isn’t repaid each month) and what actions will be taken if the card gets overdrawn, is paid late or not paid at all.

You’ll need to ensure that you can take over all monthly payments of the debt at any stage if necessary, to prevent the card going into a bad debt situation. You will also need to consider if you have the funds to clear the entire debt at any stage if you have to, if you’re put on the spot by the bank to repay the entire debt due to the way it is being used or abused.

On the plus side, you may be helping a friend re-build their credit score. This may enable them to eventually gain their own card and remove you from any responsibilities for the debt or the monthly repayments.

It will be to your advantage to make sure you can view the monthly credit card statement online so you can see how your friend is managing the account that carries your name. It may be that if they get into trouble with maintaining the card correctly, they’ll not let you know until it’s too late and you’ll have wished you never agreed to co-sign for the credit card.

This entry was posted on Monday, March 16th, 2009 at 4:42 pm and is filed under Blog. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.