The risks you incur when you co-signYour rights as a co-signer are surprisingly limitedBy Todd Ossenfort
Dear Credit Guy,
If someone
co-signed for an agreed dollar amount, would the co-signer still be held liable
for any line of credit increase that was offered to the primary cardholder
without the signature/consent of the co-signer? The credit card company indicated
that no notification was necessary. This should be an illegal action by credit
card companies and they need to be held accountable.
-- Donna
Dear Donna,
Co-signers
on loans or other credit products such as credit cards are nothing more than a
guarantee for lenders that should the account holder default, they have someone
else who is legally responsible for footing the bill. A co-signer has precious
few rights when it comes to the account for which he or she has guaranteed
payment. This is only one of the many reasons that everyone should give serious
thought to the downsides before co-signing for anyone.
I
have not seen the cardholder agreement for the credit card account in question,
but I would be willing to bet that as with many such agreements, the creditor
can make changes to the account by first notifying the cardholder. As the
guarantor or co-signer, the creditor is not required, in most cases, to send
the notice to you or receive your consent to change the agreement.
My
suggestion for you is to go back and review the document that you signed as the
co-signer. If the credit card account was set up as a joint account, rather
than as a co-signed account, you have more options. For example, as a joint
account holder, you would have the right to decline an increased credit limit or
close the account. My suspicion is that you are not a joint account holder and
simply a guarantor on the account. As such, you do not have the right to make
changes to the account or request that it be closed.
You
do have some options that I suggest you pursue with the cardholder. If the
cardholder has been granted an increase in credit limit, he or she must be
managing the account well and paying as agreed. My recommendation is to request
that the cardholder apply for another credit card in his or her name only
without you as a co-signer. If the cardholder qualifies for a new credit card,
then request that he or she move the balance from the co-signed card to the new
card.
Once
the balance on the co-signed card has been moved, request that the cardholder
close the account you guaranteed. If you're lucky, the person for whom you
co-signed will be appreciative of your willingness to help him secure a credit
card and will be willing to respect your request and close the account,
effectively ending your financial responsibility.
Unfortunately,
if your request of the cardholder to close the account is not granted, your
responsibility for the account will remain in effect. As long as the account
remains open, you are on the hook for any unpaid balance. This is something to
remember before agreeing to co-sign in the future. To protect your credit, I
suggest you check your credit report with each of the three major credit
bureaus at least once a year to assure that the co-signed account has not been
mismanaged.
Take
care of your credit!
See related: To co-sign or not to co-sign, Dad co-signed, I mess up his credit. Now what?
Todd Ossenfort is the chief operating officer for Pioneer Credit Counseling in Rapid City, S.D. Pioneer Credit Counseling has been a member of the Association of Independent Consumer Credit Counseling Agencies since 1997.
The Credit Guy answers a question about a debt or credit issue from a CreditCards.com reader each week.
Send your question to The Credit Guy.
Published: October 5, 2009
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