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Can cosigning mess up your credit?!? 

Be honest…Do you “fully” understand the risks of cosigning a loan? If not, don’t sign your name until after you’ve read this post.

Cosigning a loan can help someone with a low credit score or no credit history get financing. It’s a friendly gesture, so the person requesting your signature will no doubt appreciate the help. But cosigning isn’t a decision to take lightly. You’re putting your name and credit on the line. And unfortunately, things might not work in your favor.

I have strong feelings about cosigning a loan. I’ve never cosigned for anyone, and I’ve always vowed never to — even though my stance is a little hypocritical.

My father jumpstarted by credit by adding me as an authorized user on his American Express, and he also signed for my first auto loan at 19, for which I am grateful.

As a college student with very part-time income, it would have been nearly impossible to qualify on my own, thus delaying the birth of my credit history.

Our situation ended well, though. I didn’t go crazy with his credit card or skip loan payments. It was the ideal cosign story. But others haven’t been as fortunate.

I can’t count the number of cosigner horror stories I’ve heard over the years. Naturally, we want to believe that the person we cosign for will express their gratitude by making timely payments. But this doesn’t always happen.

So, if you’re asked to cosign a loan, think carefully before saying yes. Now, I can’t tell you what to do. But I do encourage you to understand the dangers of cosigning.

1. You Could Become Responsible for the Debt

If you agree to become a cosigner, you might be under the impression that you’ll sign your name and never think about the loan again.

This couldn’t be farther from the truth.

As a cosigner, you’re not a silent partner or simply someone who vouches for another. This is a serious commitment and you’re actually agreeing to assume responsibility for a debt if the primary borrower defaults.

In other words, if this person pulls a disappearing act and stops paying the loan, you’re liable for the monthly payments. And unfortunately, the lender isn’t going to let you off the hook.

2. Cosigning Can Hurt Your Credit Score

You’ve dedicated years to responsible credit management, and as a result, you’ve established a strong credit score. That’s something to be proud of.

Just know that it only takes one irresponsible act by the primary borrower to ruin your credit. Since you’re a cosigner and not a co-borrower, you won’t receive monthly loan statements or have online access to this account. And since you can’t freely monitor the account’s activity, you probably won’t learn about overdue payments until it’s too late.

Keep in mind that lenders often report late payments to the credit bureaus once payments are at least 30 days past due. And if this happens, the late payment or delinquency will appear on “both” of your credit reports.

Negative remarks on your credit report can remain for up to seven years, driving down your credit score and ruining years of hard work.

Think about it this way: There’s a reason why this person couldn’t get a loan on their own.

If they don’t have sufficient credit history, they probably don’t have much experience managing credit. And unfortunately, lack of experience increases the likelihood of rookie mistakes.

And if they have a low score, they probably don’t understand the basics of credit management. If they don’t have a history of managing credit responsibly, what makes you think they’ll manage this account differently?

3. Cosigning Could Prevent Getting Your Own Loan

Do you plan on getting a mortgage anytime soon? Or perhaps applying for a car loan? If so, don’t be so quick to cosign a loan.

What many people fail to realize is that cosigning a loan can make it harder to get their own loan. 

Remember, a cosigned loan will appear on your credit report along with your personal debts. The more debt you have, the higher your debt-to-income (DTI) ratio.

DTI is an important factor that lenders use when gauging affordability. If your DTI is too high, you may not qualify for some loans.

From a lender’s standpoint, this is your debt too. And since you “could” become responsible for it, they have to factor in this payment when determining affordability.

Bottom line: It’s okay to be selfish with your credit — don’t let anyone guilt you into cosigning.

Should You Cosign a Loan for Someone?

Only you can decide whether cosigning a loan is worth it. The obvious benefit is the ability to help another person fix or establish their credit history. Just know, for every successful cosigning story there’s a handful of horror stories.

Signing your name could end favorably for everyone, or horribly for you. So once you’ve reviewed the risks of cosigning, make a decision based on logic – not emotions.