If you have ever been asked by your wife, husband, child or friend to have someone else as an authorized signatory to you, i.e. a supplemental signatory, on your credit card account you no doubt gave this some serious thought. If you agreed to the request, the following are some reason why you should have a credit card in your own name and they have a credit card in their own name.
Possibly the main reason why you should have a credit card in your own name is the effect it has on your credit history.
In short, you have had to manage your financial affairs very astutely in order to gain a sufficient credit worthiness to apply for, and be approved, a credit card. Conversely, any supplemental signatory to you on your credit card doesn’t have to do anything – as the card is relying on your credit history to determine the risk of the third person. This may sound a little harsh, but if you think about it you are the one who is responsible for repaying the card, so why shouldn’t they rely on your ability to repay rather than some third person who has no obligation to repay them if there is an outstanding debt?
Now, you may well be thinking: “That’s not a problem, I’ll control their spending.” And, you may even be able to manage that feat. But, here’s another reason why you should have a credit card in your name and they should have a credit card in their name. Throughout the time that they are supplemental signatories to you on your credit card account, they are not enhancing their own credit worthiness – nor are they affecting their credit rating. So, even if they are good supplemental signatories and never spend money on your card without first seeking and getting your approval, it has no positive affect on their credit history. On the other hand, if they were to have a credit card in their own name, and were good and managed their account well, all of this would add lots of brownie points to their credit history!
Lose - Lose Situation
The reason why having a supplemental signatory on your credit card account is a lose-lose situation is not only because you take on the financial risk that they will behave themselves, but also they have no upside if they behave well. Also, keep in mind that if your supplemental cardholder runs amok and spends, spends, spends, it is your credit history that is being affected, not theirs!
What Does This Mean?
It means that you could work years building up the perfect credit history and rating only to have it all torn down overnight by someone else. So, if you don’t want that to happen, make sure have these good reasons why you should have a credit card in your own name only the next time someone asks you if they can become a supplemental signatory on your credit card account.