Know your risk before giving credit card to a relative

It's like co-signing a loan, but worse


Credit Wise
Credit Wise columnist Kevin Weeks
With more than 20 years experience in the nonprofit credit counseling industry, Kevin Weeks joined the Financial Counseling Association of America (, @TrustFCAA) as its president Dec. 1, 2014. Weeks has extensive knowledge of both the credit counseling industry and the FCAA organization, having served in leadership positions for three of its member agencies and on the FCAA board of directors. In addition, Weeks is working with FCAA members to help develop a long-term solution to the student loan crisis through the website Weeks holds a bachelor of science degree in business administration, management information systems from Salem State University.

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Question for the expert

Dear Credit Wise,
Hi just want to know, is it safe to open a credit card for someone else (e.g. my sister) as she is asking me to open one, and then she will pay me back every cent for three months, and then the credit card to be closed again. I'm asking because I just don't understand if can something like this even happen, and why would someone expect something like this from someone, because we are in different towns, I will expected to send my card (credit card) via post so that she can use this. Please I need your advice as I want to help my sister, but somehow I feel this is too much to ask from me.  -- Valencia

Answer for the expert

Dear Valencia,
I'm not sure I understand what your sister wants you to do exactly. The only legal way for you to get a credit card that your sister can use is to obtain a card on your own and add her as an authorized user (or add her asn an authorized user to an existing card). As for whether this is safe or not, only you can really say.

The question is really whether you can trust your sister to pay you back when she uses the card. If she needs help for the next three months and you are inclined to help her, you can certainly do that if you have the resources available to you.

Your sister is probably not in a position to be able to qualify for a credit card and that is why she asked you. She is assuming that you will be able to qualify. But make no mistake, if you open a card expressly for your sister to use (or add her as an authorized user to an account you already have), you will be the one responsible and it will be your credit score that will suffer if a payment is late or if the card is maxed out.

This is just like co-signing a loan, except worse. When you co-sign a loan, you agree to make the payments in full if necessary. You would be doing the same thing is you give her a credit card. But at least with a co-signed loan, you're liable for only a fixed amount. When you hand your sister a credit card, you are agreeing to pay the bill if she spends every cent of the credit limit. Taking on this kind of responsibility for someone else, no matter how close you are to them, is not something to be entered into lightly.

It's understandable you want to help your sister. For the moment, I'll assume you have financial resources that she doesn't and that for your sister, you're willing to take on some additional risk. But learn what that risk is. If you don't know already, you need to find out whether she is has a singular, one-time need, or whether she is asking you to finance an unsustainable lifestyle.

That means you need to do something that may feel awkward -- stick your nose into your sister's business. She is asking you to take on financial risk, so you have every right to know what that risk is. You should ask why she needs the money, and how much she expects to spend. You say she needs it for three months, which suggests that she's confronting a specific, known need. Would a lump sum loan be better than an open-ended credit card? Does she know how much her need is? Does she have a household budget? If she doesn't know what she'll spend or how deep she's in the hole, those are warning signs that your risk is high.

If you decide to proceed with either a lump-sum loan or a credit card, you and your sister should enter into a written agreement that spells out the terms of the arrangement. Remember that if a payment is late, there will likely be a late charge assessed. Who will pay for that? While it should be your sister, if you haven't laid out the terms she may not agree. Your name will be on the card as the responsible party and you will be the one who will ultimately have to pay.

You are right -- this is a lot to ask of anyone, even a close family member. Be very careful about agreeing to this arrangement and don't be afraid to just say no if the risks -- ruining your credit and putting yourself in danger of defaulting on a card that you cannot pay off -- are too high.

Be wise with your credit!

See related: Lending to friends and family: a 4-step guide, Sample promissory note for loans to family, friends

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Published: November 21, 2015

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