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Credit Card Myths: Lending Your Credit Doesn’t Waive Your Responsibility
Today, a personal credit card limit is stretched for purchases such as groceries, gas and even paying bills. However, while it is a necessary tool, many people are finding it difficult to get approved for a credit card with reasonable terms and a reasonable credit card limit, especially when they have had past credit card abuse problems such as going over their credit card limit and making late payments. In order to help out friends and family members, people with good credit or established credit cards are engaging in two risky credit lending activities: lending their credit cards to other people and co-signing for new credit card accounts.
Co-Signing for a Credit Card
Never co-sign a credit card application for a friend. You will be equally responsible for any debt they incur. Understand that co-signing means that the second person is liable for the first’s debt.
- Ten Tips to Maintaining Financial Health, Case.edu
Co-signing for a credit card is just like co-signing for a loan. It links your name and credit history to the account. This means that your financial information is used to determine what credit card limit is set for the account, what interest rate the card is charged and what other terms are applied to the account.
In addition to linking your financial information to the application process, co-signing for someone else’s credit card also links your credit history to the account. This means that your credit rating is going to suffer if: the person you co-signed the application for exceeds their credit card limit; if they engage in credit card abuse; if they default on their credit card payments; or if they are late on their payments. In fact, it can lower your credit score significantly and impact your ability to get the credit card limit you need or the interest rate that you want.
While damaging your credit rating is one problem that can develop as a result of co-signing for someone else’s credit card it is not the only problem that can develop. Since you signed the credit card application you are a co-owner of the account. This means that you are just as responsible for the account as the other person. If they default on their card, creditors can come after you and your assets to pay off the account. Keep this in mind when co-signing for the account.
Lending Your Credit Card to Someone
While lending someone your credit history to help them get a credit card with a reasonable credit card limit is risky it is not as risky as lending your credit card to them. When you lend your credit card to someone you are in a very dangerous position. First of all, as the credit card holder, you are the responsible party for all of the charges that are made on your account. This means that if your relationship goes sour and they don’t pay for the charges made on your account you have to pay off the balance that they racked up using your credit card limit.
Secondly, all the purchases that they make count against your credit card limit. This means that you may not have the credit that you need to make necessary purchases later on down the road. Furthermore, the purchases that they make on your card will bring your account closer to the credit card limit, which can negatively impact your credit rating.
Finally, when you lend your credit card to someone else you are extremely vulnerable to credit card abuse and identity theft. The people that you lend your card to may not be as careful with it and your credit card number could get stolen. This is just one other reason to be careful when lending your credit card to someone else.
Protect Your Credit
When you co-sign for a credit card or lend your credit card to someone else you are vulnerable to credit card abuse and fraud by that person and other people. Their charging and credit management skills impact your own credit rating. If they max out your credit card limit, if they miss a payment or if they are careless with your credit card and it is stolen your credit rating can quickly fall from good to poor putting you in a difficult position. Generally, you do not want to lend your credit. If you want to help them with purchases then go with them to the store and charge the item for them as opposed to lending them your credit card. Your credit is valuable, important and vulnerable to credit card abuse. It is because of these reasons that you need to be protective of it.
