The risks of being a guarantor on a credit card

A credit card guarantor is a person who agrees to pay the credit card debt of another person, should that person not pay it themselves. In this manner, the other person will be given a higher credit limit and a lower interest rate than they would otherwise get, and so some people view being a credit card guarantor as merely being a good and helpful friend or relative. However, there are dangers in doing this and it is a good idea to know what those risks are before agreeing to become a guarantor.

The requirement of a credit card guarantor is to have a good credit record, allowing the other person, who usually has either a bad credit record or an inadequate one, to apply for and receive a credit card on better terms. In a way, it can be seen as borrowing a credit rating from another person.

Usually a credit card guarantor is related to the person applying for the card, although there is no legal requirement for the two people to be related. These cards are most commonly used by students, who need the financial freedom that credit cards provide but do not have the credit record that allows them to get a good one, with a low rate of interest or a reasonable credit limit. The guarantor will usually be one or both of their parents, who tend to be at the peak of their earning power and generally have a good credit score.

Another group using guaranteed, or co-signatory, credit cards more frequently are retired parents who have credit cards guaranteed by their adult children.

There are a number of dangers for credit card guarantors. The obvious danger is being liable for the debt run up on the credit card. The card’s main user is expected to repay the credit card regularly, but if they don’t the guarantor is liable for the balance.

Besides financial difficulties, there are a number of reasons the main user may cease making payments. For the guarantor, it can be a shock to receive a credit card bill on the death of the main card user, or when he or she leaves the country for a long holiday.

If payments are missed, the credit record of the guarantor can suffer, another danger in co-signing a credit card. Clearly, if one does agree to fulfill this role, it is important to keep track of both expenditures and credit card repayments, as well as the main card user’s location and financial situation.