A guarantor helps someone with a short or bad credit history qualify for a credit card by guaranteeing payment of the card balance. Guarantors must have good credit and be willing to assume financial responsibility for someone else. Consider how potentially having to pay off another person's credit card could affect your own finances and your relationship with that person before you decide to be a guarantor.
Some card issuers are more willing to give people with insufficient credit histories a chance to build good credit if they have a guarantor. Guarantors must be at least 21 years old, but they don’t have the privilege of using the card they’re guaranteeing. Nonetheless, the guarantor puts his good credit rating at risk because any payments the cardholder misses can lower the guarantor’s credit score. The guarantor may need to make the missed payments to protect his credit.
You may want to end a guarantor arrangement after the cardholder establishes a good repayment history on a credit card. In such cases, the card issuer might require you and the cardholder to agree to have your name removed from the account. The issuer also may run a credit check on the cardholder to determine if he has established a credit history solid enough to qualify for the card alone. The issuer could close the account and require that the balance be paid in full if the cardholder doesn’t qualify.
Consider making someone an authorized user on your own credit card account as an alternative to becoming a guarantor. An authorized user has permission to make purchases with a credit card that’s in your name, but the user isn’t responsible for paying the bill. It’s risky to let someone use your card, but you can monitor spending and remove purchasing privileges if that person overspends. Some creditors eventually allow authorized users on accounts in good standing to get their own cards.
You can avoid putting your credit rating at risk as a guarantor by suggesting someone with credit problems get a secured credit card. Secured card applicants are required to deposit cash into an account as collateral. The applicant generally gets a credit line that’s near, or equal to, the deposit amount. Some card issuers convert secured accounts to unsecured ones if cardholders make their payments on time. Required security deposits for these cards generally start at $200, according to Bankrate.com.
Frances Burks has more than 15 years experience in writing positions, including work as a news analyst for executive briefings and as an Associated Press journalist. Burks has banking and business development experience, and she has written numerous articles on consumer issues and home improvement. Burks holds a bachelor's degree in political science from the University of Michigan.