So, I'm very responsible with my credit, and could purchase a new Mercedes on my cards right now. I've got a friend who had some issues in his past that's made his credit cr*p to the point that he thinks he may even have trouble getting a secured credit card on his own. (400-something credit score) Even when I was a FA these questions were WAY out of my wheelhouse, but I have a few:
-Can I be a guarantor on a CC for him? I'm willing to risk the $1k or so for a modest credit limit on a basic card like a Chase freedom, and I know I'll get approved since they keep trying to get me to sign up for Sapphire Reserves and AmEx Platinums
-Will this help him build his credit, especially if I withdraw after a year or so?
-Can I specify the limit? I trust him but I want to limit my max liability
I have known people with shitty credit and have not understood how they get into bad shape. Then, I started dating someone with bad credit and her decisions regarding her finances were utterly appalling. To me, beyond the realm of common sense. If you have $500 in extra cash lets say, do you payoff some loans and debts or miss a payment to go on a weekend vacation? Well, apparently the latter if you have bad credit. In our total relationship she more or less failed to pay debts month after month that I had no idea about at the time. She was spending money - I thought she had money. She didn't. At the end of our relationship she was kicked out of her apartment because she only gave them bounced checks. She had no desire to change.
I think this last point is one that you should think about before you extend your guarantee on any cards. Maybe this person is a great friend, but it sounds like he has a bad track record of credit. Does he wish to change? A change in finances is necessary from day one. Ask him if he wants to improve and what he's going to do to pay down any debts and establish credit. A talk is important. High interest debt should be prioritized.
Also, you should think from the beginning that you may lose the CC balance at least once. Will your friend change his patterns? Maybe not. You might have to talk about life motivations and generating revenues for his lifestyle. You're largely becoming your friend's banker and life coach. Maybe you can help your friend change. That would definitely be worth it all as many people don't get second chances. It is a noble cause.
Isiah, while I understand these concerns I had a previous career as a FA and understand the risks.
The guy had some crazy times and had actually put away a good chunk of cash before he lost his job in March due to the current situation. He's also been very reliable to this point, and has done a bunch of helpful stuff for my sister's fixer-upper house, and I intend to limit this to what I can afford to lose without batting an eye. Helping improve his credit is a primary goal. Let's just say that past negatives were due to 'interesting' situations outside of his immediate control.
The guy has just started to collect unemployment after several bureaucratic snafus, and largely functioned as a cash entity for the previous 2+ years, causing problems for him. I've done other things to help him thus far, but helping him get his credit in order will actually help me take off his training-wheels.
Oh ok - sounds like you know what you're getting into. I think the goal for getting a credit card would be very high max and low utilization. But, you have to tell him not to touch the depth of the credit on the card.
My boy with the muscles again
There are people like that, but also a lot of folks screw it up when young. I have a close relative who has held down a solid job for the past five years, pays all his bills on time, and always pays his rent. However, his credit is totally destroyed from partying while young, unpaid medical bills, and a college loan for a degree that he didn't finish.
Recently, he was looking for a new apartment and literally got turned down at six different places. Each one, he could EASILY afford as I mentioned and he has a good job but the past literally haunts him.
Calculate the MOIC if shitty credit friend defaults on his debt
Great ROIC if we meet you in Manhattan and he decides to beat your face into pulp. Why do you ask?
Can’t imagine he’d get denied for a CapOne secured card or something similar. Or if you don’t mind the small credit ding from opening a new account, could open a card with a $1k limit and add him as an authorized user. Even better if you have an old card you don’t use anymore, get that limit lowered to $1k and add him to increase his avg account age.
As seen below, the optimal credit utilization is 1-9%, so having 1K of expenses per month would optimally come with a 10K credit limit.
https://wallethub.com/answers/cc/best-credit-utilization-ratio-21406660…
"Best Credit Utilization Ratios:
True. Though utilization has no history and is a point-in-time metric when credit is checked, having any card with a small limit right now would help him from the perspective of establishing an on-time payment history and begin aging a new account that he'll hopefully keep clean and grow the limit over time.
Why TF would you do this? I don’t see how this could be a good idea. I’d encourage you to create a budget and get him out of his current situation before co-signing a low limit CC. My brother did this strategy for his last girlfriend (budget not the crazy co-sign method you just outlined). I think Jesus said teach a man to fish yada, yada, yada, you get the point.
See above. Six months of no income. Three months of helping move dirt and hang sheetrock for food and booze. No unemployment during a long slog with the state. Months before that of him pulling strings so I could get knackered on Fridays at a local watering hole for $20 a night when he worked there (trust me, I'm not a lightweight) He's earned his keep and he's trustworthy. If not he'd have run out with my wallet and my $20k watch collection months ago and have gotten on the road. I'll take the risk, but I want to figure out how to shove his credit up into the acceptable range to get a modestly good credit card.
Ok my bad on not reading all comments. I liked the idea of what someone else said of utilizing another card you don’t use and adding another authorized user. I’m unsure if you can control or monitor as freely as you’d like if you just co-signed for his own account. With that, if he’s as loyal as he sounds and you’re more than willing to take the risk, then co-sign and you’ll likely (or already) have a life-long friend in the event you’re ever in his shoes.
CapOne or Discover I think would work with him if you chose to co-sign.
your buddy didn't pay people he had legal contracts with. you think you being in the picture will change that?
I think no longer being a ward of the state will change that, TYVM.
Not sure how it works with cosigning with CCs. At the end of the day the real question is if this risk even worth your energy. ~400 is utterly abysmal so that'd be a huge red flag for me.
At some point you'll learn that friends are worth more than money. I've never directly profited from getting to know a good chunk of the financial media, but knowing them has helped my career immensely.
Just put him on one of your cards as an authorized user, but don't give him the card. He will get the boost of your good credit practices, you will get 0 risk of him blowing you up.
The thing is does an authorized user status help HIS credit? Mine's fine. I have zero issues there. As mentioned before I am running ~$3k/mo on a $75k or so limit paid off each billing cycle. The idea here is not even so much the card itself as much as building credit without resulting to the bottom feeders.
yes, being added as an AU will help his credit. people actually sell this as a service, called "tradelines"
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