You can apply for a credit card by yourself or with a co-applicant such as a parent or a friend. On a joint application, credit card companies gather personal information such as the date of birth and Social Security number of both applicants. However, it isn't always necessary for finance firms to check the credit reports of both cardholders.
Looking for New Credit
Accessing credit is a bit like the chicken-and-the-egg scenario. Many lenders tell you that you can't get credit unless you've used credit in the past. If you're under 21, you can't apply for an individual credit card unless you're working or have another income source. However, you can apply for a credit card if you have a co-signer such as a parent or guardian. Likewise, if you have bad credit, you can ask a friend or relative with good credit to co-sign on your loan. If you co-sign on a credit card, the bank checks both your credit score and the co-applicant's.
Effects of Credit Inquiries
Whenever you apply for credit, your credit score drops, and this may dissuade your loved ones from co-signing on your application. However, although your credit score normally loses just a few points, it quickly recovers unless you make a habit of applying for credit on a monthly basis. Beyond the inquiry, co-signing can hurt you because the new credit card appears on your credit report. If you later apply for an individual card, banks may be wary to approve your application if your credit report shows that you already have a card.
Many prospective co-signers worry about the upfront impact of a credit check but don't realize how a joint credit account could cause problems in the long term. From a bank's perspective, you and your co-signer are equally responsible for paying off your credit card. This means your parents are on the hook for the debt if they co-sign on your credit card and you max it out. Late payments and delinquent accounts hurt the credit scores of both account holders and co-signers.
Signing as an Authorized User
You can avoid the pitfalls of being a co-signer and boost your credit score if you sign a credit card application as an authorized user rather than a co-signer. As an authorized user, you have the legal right to use someone else's card. The account shows up on your credit report, but you're not responsible for repaying the debt. Since you're not the account owner, the credit bureaus don't need to pull your credit report when you submit the application. Simply put, you get all of the benefits of the account without taking on any of the risks or responsibilities.
- Experian: The Difference Between an Authorized User and a Cosigner
- MyFICO: Credit Reports Q and A: Is There a Best Way to Go About Applying for New Credit to Minimize the Effect to My FICO Score?
- MyFICO: Credit Checks & Inquiries
- Federal Trade Commission: Co-Signing a Loan
- Bankrate.com: Under 21? Credit Cards Hard to Get