When it comes to building credit, everyone has to start somewhere, and there's no better place to start than with your first credit card. Credit card companies require that applicants meet specific credit and income guidelines before approving an application. This makes obtaining a credit card tricky without a previous credit history to fall back on. A qualified co-signer helps you bypass this obstacle so that you can get started building your positive credit rating.
A co-signer is any individual who meets the credit card company's credit and income requirements and is willing to serve as a backup plan for the creditor. In the event you stop making payments, the credit card company will look to your co-signer for payment. Provided your parent meets the credit card company's requirements and is willing to do so, he can co-sign with you for a credit card.
CARD Act Requirements
The Credit Card Accountability Responsibility and Disclosure Act of 2009 changed the way credit card companies are allowed to market cards to young adults. If you are under 21, you must submit financial statements, such as copies of your most recent pay stubs, to the credit card company with your application. Your financial documentation must demonstrate you have a steady income and can repay any debt you incur. If you do not have steady employment, the CARD Act requires that a responsible co-signer over the age of 21, such as a parent, guardian or spouse, co-sign the application with you.
Co-signing for a credit card may greatly benefit a loved one but it carries one glaring disadvantage: the co-signer is legally responsible for repayment if the cardholder defaults. According to the Federal Trade Commission, the credit card company can pursue the co-signer for payment before trying to collect from the primary borrower. If your parent co-signs with you, it's vital that you pay on time, every time. If you default on the debt, the credit card company has the right to sue your parent. This could leave him facing such harrowing consequences as a bank levy, a wage garnishment or property liens.
Co-signing a credit card is always a risk, but the age of technology has reduced that risk for parents trying to help their children build credit. Credit card companies often give cardholders the ability to log in to their credit card accounts online and review recent purchases, payments and the card's current balance. This gives your parent the ability to regularly check up on your account to make sure you're practicing responsible spending and making timely payments. A well-informed parent can step in as soon as trouble surfaces – preventing financial disaster for you and your co-signer.
- Forbes.com: How to Get Approved for a Credit Card
- Federal Trade Commission: Facts for Consumers – Co-signing a Loan
- U.S. Government Printing Office: The Credit Card Accountability Responsibility and Disclosure Act (Title III/Sec. 301/p.16)
- Bankrate.com: Debt, Collection Agencies and Your Rights
- Bank of America: Credit Card FAQs
Ciele Edwards holds a Bachelor of Arts in English and has been a consumer advocate and credit specialist for more than 10 years. She currently works in the real-estate industry as a consumer credit and debt specialist. Edwards has experience working with collections, liens, judgments, bankruptcies, loans and credit law.