Photo by Bojan Milinkov / Shutterstock.com
Tempted to lend your credit card to a friend or family member? You are not alone.
About half of cardholders admit to such behavior, according to a CreditCards.com survey of more than 2,200 U.S. adults earlier this year.
Unfortunately, such generosity often backfires. More than one-third of those who lent out their cards admitted to suffering negative consequences, including:
- Overspending by the other person: 19 percent of respondents
- Not getting repaid for the debt: 14 percent
- The card being lost, stolen or never returned: 10 percent
Before letting someone else borrow your credit card, stop and think through the possible ramifications of doing so. In fact, it would help to do this right now, so you will be prepared if and when someone knocks on your door and requests access to your plastic.
As we point out in “The 3 Golden Rules of Lending Money to Friends and Family“:
The most important thing is to formulate a policy now. Then you won’t have to think on your feet when the situation arises. Maybe you only lend in dire emergencies, or to relatives with jobs. Or perhaps you decide not to lend to anyone under any circumstances.
If someone expertly pulls at your heartstrings and you decide to help out financially, consider not using your credit card to do so. Or, at least understand that lending out a credit card is riskier than alternatives such as loaning cash. There’s more than money on the line with the card.
If you loan someone $100 in cash, you basically cap your potential loss at $100. In other words, the worst thing that can happen is you never see that $100 again.
If you loan someone your credit card, you risk the monetary loss as well as interest charges and fees and — most concerning — damage to your credit.
Risking your credit
If someone rings up a big tab on your credit card and you struggle to pay it in full, you’ll be charged interest until it has been paid off.
You may also hurt your credit utilization ratio, in turn hurting your credit score. We detail this in “Boost Your Credit Score Fast With These 7 Moves.”
If the credit card bill isn’t paid on time, you risk incurring other charges from the credit card company. You also further risk your credit score.
As we explain in “6 Simple Tips for Newbies to Establish Stellar Credit“:
One late payment can send your credit score plummeting. … Making on-time payments is a significant part of your credit score.
So while it may be popular to lend out a credit card, this might be one situation where you do not want to follow the crowd.
So, have you ever let someone use your credit card? Tell us about your experience by commenting below or over on our Facebook page.