Joint Credit Card Applications and Co-Signing for a Loan

Two people may consider entering into a joint credit application for a myriad of reasons. Perhaps a married couple is looking to purchase a home or vehicle together. Or maybe a father is helping his child get a first credit card to build responsible credit. Occasionally when some people attempt to open a line of credit or take out a loan, the bank will deny them for lack of credit or bad credit.

There are many reasons a bank would deny an individual a loan or line of credit, and some are more valid than others. Those who are just starting to play the credit game have a slim chance of being able to take out a sizeable loan. Even if cell phone bills are paid on time and rent is always delivered a week in advance, in the banks’ eyes, these people haven’t proven yourself financially responsible. People caught in credit limbo are pretty much faced with a Catch-22. Those lucky enough to get a line of credit are usually plagued with high interest rates.

Or worse yet, you’ve been given a chance and failed miserably. You could have dug yourself into a hole, or extenuating circumstances might have arisen leaving you unable to pay your bills. Regardless of the situation, the bank is not impressed and won’t let you borrow any more money.

Sometimes the bank will suggest for individuals caught in these circumstances to have another person cosign as a protective measure. The cosigner in this case is not only vouching that the other can and will have the funds for payment, but should the other person default on the loan, he/she will be responsible for the repayment. Share with each other your detailed credit score to get an idea of each other’s financial history. Before entering into a joint agreement, whether it is for a credit card or loan, it’s important to understand the benefits and risks involved.

Benefits

It should go without saying that you better have a healthy and open relationship for anyone you wish to mix money. Involving your partner financially, whether via joint credit card or co-signing for a loan, with purchasing big-ticket items such as appliances, cars or a home is a great way to lock in a competitive interest rate. Moreover, there are two of you to contribute towards repayment. Two parties can both expedite the process and/or lessen the financial burden for each other.

Entering into a joint credit card gives two people the opportunity to consolidate their debts. Because two people are being held accountable, banks will be much more accommodating with larger lines of credit and a lower interest rate. Should the holders of the joint credit card live under the same roof, it’s an ideal situation for allowing both parties to pay for utilities or family memberships.

With joint accounts comes a new sense of responsibility. It is almost easier for a person to accumulate debt when he or she feels like no one else is watching. A joint account may make a person think twice about a purchase since both people are accountable for all charges put on the card. It’s one thing to tell your wife you’re going out drinking with the boys. But it’s another to put it on the credit card where your wife can see just how much you spent. Before a husband orders another round for his buddies, it just might make him consider  “What would my wife think when she sees I ran up a $150 bar tab?”

Joint agreements also prove beneficial when one person in the relationship is looking to build (or rebuild credit). If one partner has better credit than the other, it is not uncommon for the better credit partner to co-sign for a loan. This is dually advantageous: 1) it allows the low credit person to receive a better interest rate, and 2) it is an opportunity for the low creditor to build good credit. Of course, consistent repayment will result in the increase of both co-signers credit score.

Risks

The biggest risk to consider when applying for a joint credit card application is that you are putting your credit card rating in the hands of the co-signer. Any debts incurred after signing that paper ultimately will affect your credit card score. This opens the door for the co-signer to accumulate debt and leave you responsible for paying for it. Before entering into the agreement, examine how the potential co-signor handles finances. If he or she is already a financial disaster, meaning paying bills late or not at all, it’s strongly advisable to put down the pen and walk away.

In addition to assessing the co-signor’s financial history, evaluate the type of relationship you two have. Marriages are easy to assess since you have already entered into a binding legal agreement. Long-term relationships give you ample time to see your partner’s spending habits. If you are considering co-signing with someone in newer relationships or even friendships, you may be operating on little information, which can be potentially dangerous. Familial relationships are of a completely different breed. Since you can’t choose your family like you can your friends and partners, treat these on a case by case basis.

Regardless of the relationship you hold with the person asking you to co-sign, if the person on your joint credit card application is late in making payments, then it is also reflecting badly on you and your credit may be tainted.

There is a widely held belief that relationships and money should never mix— this adage includes cosigning on a credit card or loan. Should you end up with debt and the relationship destroyed, it could ruin your credit. It is always better to air on the side of caution with joint credit card applications. If you have no doubts that the co-signer can make the payments, then help the person out in good faith. If someone does ask you to co-sign and you are unsure, then you should say no, and leave it at that. It may be tough for a while, but a good friend, significant other or spouse will get past it.

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