Money Series: Establishing Credit & to Cosign or Not? - Intercession For A Generation Blog

People often co-sign for children or even friends when they have bad credit or no credit at all. However, co-signing is a bad idea that the Bible warns against. Let’s go back to the book of Proverbs:

There’s danger in putting up security for a stranger’s debt; it’s safer not to guarantee another person’s debt – Proverbs 11:15 (NLT)
My son, if you have put up security for your neighbor,
if you have shaken hands in pledge for a stranger,
you have been trapped by what you said,
ensnared by the words of your mouth.
So do this, my son, to free yourself,
since you have fallen into your neighbor’s hands:
Go—to the point of exhaustion—[a]
and give your neighbor no rest!
Allow no sleep to your eyes,
no slumber to your eyelids.
Free yourself, like a gazelle from the hand of the hunter,
like a bird from the snare of the fowler. – Proverbs 6:1-5 (NIV)

The above scriptures warn of the seriousness of co-signing for someone. Putting up security or shaken hands in pledge represents a contract, covenant, or an agreement. In short, the one who co-signs for another agrees to pay that person’s debt if they do not pay it. The person who co-signs assumes the risk of the one he is co-signing for because the person he is co-signing for either has no credit history or bad credit history.

If a person has a bad credit history; he will have to devise and execute a plan of paying down debt until it is all paid off to correct his credit history or look into filing bankruptcy and rebuilding his credit.

A person with no credit history will not be able to take out certain loans like a mortgage. She will have to begin to establish a credit history. One of the best ways to begin to establish a credit history is through a secured credit card. A secured credit card is a card that has a balance that is secured by an amount a person has in a bank account. For example, a person with no credit can visit a credit union or a bank and ask to apply for a secured credit card. She then will open an account with a specific dollar amount. The person’s credit limit will be the dollar amount that’s in that account. If $500 is the agreed upon amount; $500 has to be in that account at all times as long as the credit card is open.

The person with the secured credit card needs to practice the good credit habits mentioned in the previous post such as keeping the balance below 30% or between 0%-30%. That would be between $0-$150 in this case. The person with the secured credit card should only buy what is needed not using the card for wants or frivolous purchases. Purchase something needed such as gas in the car each month. Then pay what was spent on gas off completely. After doing this over a period of time, the credit rating of this individual will go up. At that point, other credit will be made available to this individual.

Parents can direct their children to build credit in this way; instead of co-signing for them for purchases. This will give them a sense of responsibility, and assist them in building their credit so they no longer need a co-signer. Co-signing is for those who do not mind paying their bills and someone else’s’ bills. However, most people do not make enough money to carry their debt and someone else’s; so don’t co-sign.