3. The account holder may be able to increase the credit limit

The Credit Card Accountability, Responsibility and Disclosure Act, or Credit CARD Act, mandates that while the account holder is younger than 21, the co-signer has to give written permission for any credit limit increases, says Chi Chi Wu, staff attorney with the National Consumer Law Center.

However, once the cardholder is past the age of 21, no federal law requires that the co-signer be notified of any credit line increases, she says.

You may be thinking of co-signing, believing that if anything goes wrong, you can just write a check for your student's relatively small card bill.

However, if your adult child keeps that account open past his or her 21st birthday, the bill could end up being quite a bit more than you estimated.

4. Bad marks can show up on your credit report

Late payments, missed payments or collections on the account?

In the eyes of creditors, it's your account, too, so "you're equally at risk for any sort of negative credit reporting and/or collection activities," says Ulzheimer.

Even if you never have to pay a dime, co-signing with someone who doesn't know how to manage credit or just doesn't do it well can cost you money by eroding your own credit. These days, everyone from potential employers to loan officers to insurance companies can look at credit reports.

One smart move: Look at alternatives to co-signing. A few to consider:

  • Adding the person as an authorized user to one of your credit cards. You'll be responsible for the bill, while the other person builds his or her credit. If he or she abuses the privilege, you can shut off access.
  • A secured credit card. The other person gets a card in his or her own name with a credit limit backed by funds. Most secured cards build credit, and some can convert into traditional credit cards after a trial period.
  • A debit card. With a checking account, the other person can get a debit card. It doesn't build credit, but it also doesn't place your credit at risk.

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5. You need an exit strategy

Do you want to be responsible for your friend or relative's credit card bill for life?

If not, you need an exit strategy.

Often, ending the co-signing arrangement requires closing the card account, says Nessa Feddis, vice president and senior counsel for the American Bankers Association.

The wrinkle: Depending on the contract and your state laws, you may need the cardholder's cooperation, she says. It may not be as simple as just telling the card issuer you want out.

Another consideration: Unpaid debts accumulated while the co-signed account was open are still your responsibility -- even after the account is closed. Until they're paid, they're still your bills.

Considering co-signing? Call the issuer first, and find out exactly what your options are for ending the co-signing relationship when that day eventually comes, Feddis says. Do you have to close the account? Do you need the account holder's permission?

While you're at it, ask about your access to account information. Can you get account status and balance information as a co-signer? Will you be told if the credit line or interest rates change? Will you be notified if payments are late or if the account is heading for default?

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