How to Remove Yourself as a Co-Signer on a Credit Card
You can help a family member or friend with bad credit get approved for a credit card if you co-sign the account. But you probably don't want to remain as a co-signer indefinitely.
For example, you may want to remove yourself as a co-signer if:
-- You and the primary cardholder no longer have a joint financial relationship.
-- You don't want the account associated with your credit reports and credit score.
-- You no longer wish to share responsibility for the debt.
However, getting removed as the co-signer on a credit card isn't always simple. Here's what you need to know.
[Read: Best Starter Credit Cards for Building Credit.]
What Is a Co-Signer and How Does Co-Signing Work?
A co-signer guarantees a credit card or loan on behalf of an applicant who can't get approved on his or her own. Usually, it's because the applicant has bad credit or a limited credit history, which increases the lender's risk. As a co-signer, you use your good credit to lower that risk.
"As a co-signer, you are obliging yourself to pay the entire bill should the applicant in question not be able to fulfill their financial responsibilities," says Leslie Tayne, a debt resolution attorney at Tayne Law Group in New York and author of the money management book "Life & Debt."
According to Tayne, debt on the card that you didn't accumulate yourself still will be considered your responsibility if the primary cardholder can't pay it back. "Even if the (cardholder) is sick or dies, the responsibility of paying that debt falls on you."
Credit Card With a Co-Signer vs. Authorized User
Co-signing a credit card might sound similar to adding an authorized user to your existing account. These two are sometimes confused, and it's important to understand the differences.
An authorized user is someone who is added to a credit card account. That person gets his or her own credit card and is authorized to make purchases. However, authorized users are ultimately not responsible for paying the credit card balance. That burden falls on the primary account holder.
A co-signer, on the other hand, doesn't have any access to the card account but is equally responsible for the debt. Co-signers typically don't receive a card or any bills unless the primary account holder fails to pay.
Credit Cards That Allow Co-Signers
It's fairly common for car loans, private student loans and mortgages to allow co-signers. When it comes to credit cards, however, it's a bit rarer. According to credit bureau Experian, Bank of America, U.S. Bank and Wells Fargo allow applicants to add a co-signer. However, many other major card issuers don't, including American Express, Barclays, Capital One, Chase, Citi and Discover.
That means even if you agree to be a co-signer for someone, that person needs to double check that the card allows for co-signers. In many cases, it may not.
Potential Downsides of Co-Signing
Co-signing on a credit card is a big responsibility. So why do it? According to Jennifer McDermott, former head of communications and consumer advocate at savings website Finder.com, people sometimes co-sign to help their spouse get approved for a higher credit line or make joint purchases as a couple.
You also might want to co-sign for a child, family member or friend. Tayne says, "Certainly, this is a big help to someone who can't obtain credit on their own. However, it will also result in you ultimately taking on responsibility for it."
Since you are equally responsible for any debt and interest charges accrued, co-signing a credit card presents a risk when it comes to your credit. In fact, co-signing has about the same effect as opening a credit card on your own.
[Read: Best Credit Cards for Bad Credit.]
According to Tayne, any credit card or loan you co-sign for will appear on your credit reports. That will impact your debt-to-income ratio, or DTI, which measures how much of your income is allocated to monthly debt obligations. If the primary cardholder racks up a big balance, you're on the hook for that debt, too. If you apply for your own credit card or loan, a too-high DTI could hurt your chances of getting approved.
As a co-signer, you're trusting the primary cardholder to manage payments responsibly. Just one missed payment could have a negative impact on your credit score. Several missed payments and you could be answering calls from debt collectors -- or eventually face a lawsuit.
"It is essential that you trust the person who you are co-signing for," Tayne says. However, she points out that even if the primary cardholder is reliable, you might not be able to predict how a serious illness or job loss can financially devastate even trustworthy people.
If the person you co-signed for fails to responsibly maintain the credit account, the stress can be draining. "You also have to consider what it will do to your relationship; a missed payment can cause a rift between you and that person," Tayne says.
Options for Removing Yourself as a Credit Card Co-Signer
Getting released as a co-signer can be tricky. If you decide it's best for you to be relieved of your co-signer duties, there are a few options you can try:
Ask the card issuer directly. The first option you should try is simply asking the issuer of the credit card to remove you as a co-signer. "Removing yourself as a co-signer isn't always an easy process, particularly if the primary person on the account has not yet proven they are capable of paying on their own," says McDermott.
However, if the card has been open for at least a couple of years and the primary account holder has been making payments on time, the card issuer might be willing to drop you as a co-signer.
Ask the cardholder to transfer the balance. If some time has passed since you first co-signed the credit card and the primary cardholder has built up good credit, that person might be able to qualify for a credit card without your help. If that's the case, you can recommend that the cardholder look for a balance transfer offer that will allow him or her to move the debt from the current card to a new one, typically for a small fee.
Once the balance is transferred, the cardholder can close the credit card that has your name on it. Often, card issuers will offer a 0% annual percentage rate for the first 12 to 18 months on balance transfers, so this option can be a big win for you both.
[Read: Best Student Credit Cards.]
Ask the cardholder to refinance the debt. Rather than transferring the balance to another card, the primary account holder might want to consider refinancing the debt with a personal loan. Refinancing is the process of taking out a new loan to pay off an existing debt. In the case of refinancing credit card debt, the primary cardholder can take out a personal loan and use the funds to pay off the card's balance.
There are a couple of benefits to going this route: First, the interest rate may be lower, as personal loans often have lower starting interest rates than credit cards. Second, a personal loan can consolidate more than one credit card into one easy-to-manage monthly payment.
Pay off the card yourself. An August 2018 study from Finder.com found that 37% of Americans have paid off their romantic partner's credit card debt. But even if you and your co-signee aren't romantically involved, you might have to take matters into your own hands if none of these other options is feasible.
According to McDermott, if there is an existing balance on the card, you'll need to pay it off before you can close it. "If the primary is unable or unwilling to do this, you may need to bite the bullet, make the payment and fight it out later before it impacts your credit score," she says. "Once the balance is paid, the credit card can be closed and you will be absolved of future responsibility."
Since co-signing can be risky and it's not simple to be removed from the credit card account, weigh the decision of co-signing very carefully. Tayne says, "Before you co-sign, have a discussion with the borrower. Discuss their plans to ensure their ability to repay for the entire term of the loan."
She says you need to put in writing what should happen if the co-signee doesn't pay. "Know your rights," Tayne adds. "I see so many co-signers default, and there is no recourse without something in writing."
Updated on Aug. 30, 2019: This story was originally published on an earlier date and has been updated with new information.
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