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The risks you incur when you co-sign

Your rights as a co-signer are surprisingly limited

By Todd Ossenfort

The Credit Guy
'The Credit Guy,' columnist Todd Ossenfort
The Credit Guy, Todd Ossenfort, is a credit expert and answers readers' questions about credit, counseling and debt issues.

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Question for the CreditCards.com expert

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

Answer for the CreditCards.com expert

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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