Credit card

Risks to keep in mind when co-signing a new credit card application for a friend or family member

Risks to keep in mind when co-signing a new credit card application for a friend or family member
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Dubai: Most laws prohibit banks from issuing credit cards to anyone under the age of 21, unless the person has a co-signer or sufficient income to pay off the card. But one of the easiest ways to help a young adult or family member build a credit history is to add them as an authorized user or be a co-signer on one of your cards. credit.

This can establish a record for that person with credit bureaus if they don’t already have one, and increase important credit score factors like average account age and overall credit usage or the amount of available credit you are using.

However, being an authorized user is not the same as being a co-signer on the credit card account. Here’s what you need to know about the differences.

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Being an authorized user is not the same as being a co-signer on the credit card account.

What does it mean to be an authorized user on someone else’s card?

If you’re looking to build credit, becoming an authorized user on someone else’s credit card is a smart option. This can be relatively low risk and allows you to increase or increase your credit score. But before signing up, there are a few things you should know.

When you are added as an authorized user to someone else’s credit card account, you can use their credit. With that in mind, you should really only become an authorized user on an account owned by someone with good (670-799) or excellent credit (800-850).

What is an authorized user?

An authorized user is an additional cardholder on someone else’s credit card account. You have a credit card in your name that is linked to the primary cardholder’s account.

An authorized user is essentially another person authorized to debit your credit card account. You will receive a card with that person’s name on it, but when that person uses the card, the charge will appear on your account – and you are responsible for paying the bill as well.

How is being an authorized user different from being a co-signer?

A co-signer, on the other hand, is a shared responsibility. Much like co-signing a student loan, the account would be opened in the name of your child or a family member, but you are both equally responsible for the amounts charged to the card.

While the bank usually only comes to you for payment if the primary cardholder doesn’t pay, they have the legal right to demand payment from you without asking the primary cardholder first.

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3 factors to consider before becoming a co-signer

3 factors to consider before becoming a co-signer

1. In some ways, being a co-signer is a natural next step in helping a child or family member build credit by opening an account that person is responsible for, rather than just following your account.

2. On the other hand, this is a bigger risk on your part – while it is quite easy to limit an authorized user card or completely revoke access, it is much more difficult to enforce restrictions on an account that is partially owned by someone else.

3. Being a co-signer also means making a long-term commitment: by default, you will be responsible for the card and will display it on your credit report as long as the account is open.

3 risks to take into account before becoming a co-signer

1. Although some banks remove a co-signer once certain conditions are met (for example, once the primary account holder has established a good payment history and sufficient income to support the card), your ability to opt out account without closing it depends on the policies and discretion of the bank.

2. Co-signing a card can also interfere with your own credit card applications when banks have restrictions that condition the approval of new cards to the number of accounts you have recently opened.

3. While it is possible to bypass this requirement when you are not eligible for authorized user accounts, it will likely be more difficult to convince a representative that a co-signed card should not count against you.

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3 risks to consider before becoming a co-signer

At the end of the line ?

If you’re trying to help someone increase their credit, being a co-signer on a credit card application can make a big difference. However, this is also a significant risk, since you are then responsible for a credit card that you do not have complete control over.

In most cases, it’s best to add the other person as an authorized user on some of your cards first. accounts for which you are responsible.

Once he or she has proven their ability to handle your cards responsibly, you may want to consider being a co-signer if the person still cannot get a card without assistance.

Adding an authorized user won’t hurt your credit unless they overspend and leave you with a lot of debt, or go over your credit limit. If you’re considering adding an authorized user, we’ve got the information you need to make the right decision.