Even if the loan that you have co-signed on is
in good standing, being a
co-signer can negatively impact your
score and effect your own abilities for borrowing.
The loan you have committed to being a co-signer of is a debt
that reflects on your credit report just like any other debt you
encompass. Therefore, whatever info the lender of that loan
reports regarding the account status is going to show up on all
names connected with that account.
Therefore, the debt of that loan is going to
increase the amount of your total outstanding debt --
supplemental to your car loan, mortgage, student loans, credit
cards, etc.. You may have a difficult time
applying for a personal loan for yourself in the event that
the lender concludes that your debt-to-income proportion is too
high -- regardless if the account's payment history is ideal.
Also, most late payments will reflect on your credit report,
typically without any cautionary notice. It is possible that
some lenders will attempt to notify co-signers and grant them a
chance to pay prior to reporting it as late. And in the event
that the borrower fails to pay the loan, it can annihilate your
credit -- reflecting as a default for you as well.
Should I co-sign a personal loan?
Since there is so much at risk, it is going to be best to
decline any invitation to be a co-signer. If you are an
individual that likes to help, analyze the entire situation
first, regardless if this is a family member, child or friend.
Try and determine if the person you are dealing with has the
ability to repay the loan. It is your credit history and money
that you are risking.
If you do decide to go ahead and co-sign, make sure you
understand all of the aspects of the loan, including the terms
and conditions and all of the
rates and fees involved. It is important that your contact
info is listed on the loan and that you are to receive all the
same loan documents as the borrower and that you are sent
payment confirmation each month.
Once you co-sign for a loan, your name is
associated with that loan until the loan is paid off. However,
the borrower's credit will begin to improve and they will soon
be able to refinance the loan to be only in their name.