If getting a credit card is difficult due to a bad credit history or no credit score, a co-signer can help. He shares a good credit score and applies for a credit card on your behalf. He may help you qualify for better credit cards with low interest rates. However, both the person and you are responsible for the payments on the loan. If you lack income in any form currently, he will be responsible for 100% of the payments. It would help you start building credit on a good note.
Well, there is a flip side to the coin.
What if he refuses to continue payments after some time?
Stopping the payments leads to increased bills and interest costs on the credit card. It may lead to credit card default or debt trap. It is where the confusion arises and makes one think:
“Should you take the help of another person to qualify for the credit card?”
If you want to know whether you should or not, read ahead.
How does co-signing on the credit card work?
When a person co-signs the agreement, he is essentially responsible for the charges on the account. A co-signer is not an account holder and does not hold legal access to the account. He only guarantees to step in if the bill cannot be paid. The person must be at least 21 years old. When a primary account holder would not otherwise be approved because of a damaged and non-existent credit history, co-signing can help.
It is the best option for those who have poor credit history or not at all. Parents and guardians helping their children build up credit may benefit. The credit card companies generally allow someone to be the guarantor on the credit card. Within which the person guaranteeing the credit card would be legally responsible for the payments. However, you must check with your credit card provider whether he provides the flexibility of the guarantor or not.
However, co-signing a credit card may not be the best option always. Thus, one must explore the alternatives for a better move.
Pros and Cons of co-signing a credit card
However, co-signing a credit card is a nice thing to do. It has repercussions. Here are some potential upsides and downsides of having a co-signer on the credit card:
|If the credit holder is responsible for payments assisted by a guarantor, the credit score shoots.|| |
If the primary guarantor skips on the payments due to some financial issues, the actual borrower gets indebted.
Helps the new credit owner or the one with a poor credit history qualify for a credit card and benefit from the interest-free period.
|If the guarantor’s credit drops, the borrower will be impacted too. The person’s credit will drop if the guarantor’s financial mismanagement.|
|Helps one qualify for a higher limit and exceed one if required.||It is a convenient arrangement until the borrower and guarantor are on even terms. Rift in financial matters may ruin the relationship.|
When should you co-sign a credit card?
If you are still confused about whether co-signing a credit card with a person seems sane or not, the below aspects may help. Here are some situations where co-signing can prove helpful and a good decision:
1) Have minimal and no credit history
As mentioned above credit history and score are critical to qualify for interest-optimised credit cards. If you lack one, co-signing can help. The co-signer guarantees the payment.
2) Have poor credit score
Having a poor and no credit history signals confusion about whether you can manage the payments or credit well or not. Here, having a co-signer can help you get the credit card.
3) You are self-employed
If you lack a regular job or employment, the credit card provider may decline the credit card approval. They desire individuals to have a steady income source. Thus, a co-signer with a stable income and credit score can help you here.
Thus, you may decide according to your relationship with the person (guarantor). He may help you qualify for better terms on a credit card. However, if he fails to pay or clear the dues, your credit may be damaged.
It is the reason individuals seek independent modes to improve credit and meet requirements. Fortunately, there are some other ways to manage credit and needs independently.
Alternatives to using Credit Cards with a co-signer
Sometimes, one finds it hard to get a guarantor. There could be multiple reasons for that. For example- living away from family, having no one in town to help (relatives), etc. In this case, you seek alternatives to using credit cards with a co-signer. Here are some that may help you finance your lifestyle well:
1) Opt for authorised user status
It is where the person needing the credit card (18+) is the new-to-credit person. Here, both the primary card holder and the new-to-credit person have separate credit cards that one can control or cancel.
2) Check credit builder loans
Credit builders’ loans help the new-to-credit person to build a credit history from scratch. Moreover, individuals seeking credit improvement also tap these loans. In this, you pay towards the loan in monthly instalments up to the loan tenure. It acts as a deposit on the loan. After completing the loan tenure, you get the money back.
The whole point here is to make regular payments on the loan until the tenure. Moreover, consistent bill payments alongside repayments help your credit score. It is ideal for the person who wants to start credit building on a good note. However, you must hold a regular income to qualify and make payments on the loan.
3) Check feasibility for a secured credit card
A secured credit card requires one to pay a lump sum upfront. It is ideal for individuals wishing to improve their credit history. The deposit acts as a security or collateral on the card. You get the money you deposit on the security credit card back after you repay the total amount by the term end. Alternatively, if you fail, the credit card provider may claim the deposit.
4) Unsecured credit card without a credit check
Individuals with a regular income and a good employment history may get an unsecured credit card. The terms and interest rates stand competitive with respect to the secured credit cards. You can pay towards the credit card according to the terms and agreement. Just like secured loans, timely payments help boost the credit history.
However, unsecured credit cards can prove costly if you skip payments. With limited income and liabilities, you may struggle.
What if an unsecured credit card proves hard to manage?
If you need a far more affordable version of credit cards, instalment loans may help. Individuals with some income can qualify for the loan. As the name suggests, you pay the loan in equal repayments monthly/weekly according to the loan tenure. It is affordable in terms of interest rates and terms. It is budget-friendly in terms of a credit card.
You can use instalment loans from a direct lender instead of a credit card to finance any short- or medium-term cash requirement. Along with helping you meet the requirements; it helps build a credit score. Moreover, even if you skip a repayment, it never exceeds the costs of a credit card.
What could be better than having no guarantor and running your account independently?
With these loans, you can actually do that!
Thus, the article helps you underline the best situations where co-signing a credit card may help. Individuals with low credit history and income may benefit from it. Alternatively, without a guarantor, other options like instalment loans may help. You can finance any requirement hassle-free with constant income proof. It is an affordable solution to credit cards.