Co-signatory credit cards are a popular choice for people unable to otherwise acquire an adequate card, due to either a poor or non-existent credit rating.
A co-signatory credit card works by having two people guarantee the card’s debt. One of these people will be the main credit card holder and the other will be the secondary holder or “co-signer.” The co-signer will usually be someone with a better credit rating. This allows the credit card providers to offer better terms and lower interest rates, due to the higher likelihood that they will be repaid.
In effect, the main credit card user is borrowing the other person’s credit rating. It’s a good deal for the main user, but it can put the co-signatory at some risk.
If the main card user stops paying the monthly statement for whatever reason, the co-signer will be liable to pay off the balance. The co-signer may also see his or her good credit rating suffer if the account has been subjected to any late payments, dishonoured payments, or any other problems.
Usually the co-signer will receive the credit card statement, as well as the main credit card user, and it is important this statement is read regularly by both recipients. The credit limit should also be an amount acceptable to both card holders.
This co-ownership of a credit card carries a lot of potential for distrust, and so co-signatory credit cards are mainly marketed to family members. These co-signatory cards work best when there is already an atmosphere of trust and obligation, which is more common within a family than many other relationships.
The two most common uses for co-signatory credit cards are between parents and adult children, at the two opposite ends of that relationship. The first is for students and young adults, who need to acquire the responsibility and experience to manage their own finances but do not yet have a credit rating. At this point in time, parents can help by lending their son or daughter their credit rating.
The other common use, and a growing area, is for adult children to co-sign a retired parent’s credit card, giving some degree of financial independence as well as the ability to cover unexpected financial emergencies on perhaps a fixed income.
