Does Cosigning Affect Your Credit? What You Need To Know Before Saying Yes

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Cosigning loans is more than just a signature. And if it goes wrong, it can negatively affect your credit. The impact at the end of the day depends on how the loan plays out.

Before you agree to co-sign, you need to know what you’re signing up for and how it may affect your financial future.

What Does It Mean to Cosign?

Cosigning means you’re promising the lender that you’ll repay the loan if the prim=ary borrower doesn’t. You’re not just vouching for them, you’re taking on legal responsibility for the full debt.

You won’t get the car, the degree or the keys to the property, but you’ll share the financial liability if bills don’t get paid.

People often cosign for:

• Auto loans
• Student loans
• Rental applications
• Credit cards (less common, but it happens)

If the borrower makes timely payments, great. If not, the lender won’t hesitate to come knocking on your door next.

When Cosigning Can Help Your Credit

Believe it or not, cosigning isn’t always risky. In some cases, it can even boost your credit score a little. Here’s when:

• On-time payments build your credit, too. As long as the borrower stays current, you benefit from the positive payment history.
• It can diversify your credit mix. If you only have credit cards, adding an installment loan to your report could help your score.
• It shows you’re trustworthy. Successfully cosigning can demonstrate to lenders that you’re financially responsible. Just make sure it doesn’t backfire.

When Cosigning Can Hurt Your Credit

Now for the not-so-fun part. Cosigning can backfire, especially if the borrower struggles with payments.

Here’s how things can go sideways:

• Missed or late payments hit your credit too. Even if you didn’t know they were late, your score could drop just like theirs.
• It increases your total debt load. Lenders look at your debt-to-income ratio. This loan could make it harder for you to qualify for new credit, like a mortgage or car loan.
• If the borrower defaults, you’re on the hook. Not just emotionally, but legally. And collections, charge-offs or lawsuits? They’re your problem now, too.

Cosigning can seriously damage your credit if the borrower doesn’t follow through.

Visual Guide: How Cosigning Impacts Your Credit

What To Think About Before Cosigning

Saying yes to cosigning isn’t just about trust. It’s about financial reality. Ask yourself these key questions first:

• Do you fully trust the borrower to make payments every single month?
• Can you afford to cover the loan if they can’t? Be honest with yourself.
• Are you planning to apply for a loan soon? This could hurt your chances of getting approved.
• Are there other options? A secured credit card or credit builder loan might be safer for both of you.

Don’t cosign just because you feel guilty or pressured. Do it only if you’re confident they’ll pay and you can cover it if they don’t.

How To Protect Yourself If You Decide To Cosign

Still leaning toward saying yes? Good on you for wanting to help. Just make sure you protect yourself as much as possible.

Here’s how:

1. Set up alerts: Ask the borrower to set up automatic notifications for due dates and missed payments and make sure you’re copied.
2. Ask to see statements: Not out of mistrust, but accountability. If you’re sharing credit, you deserve transparency.
3. Stash a backup fund: Even a small savings cushion can help you avoid a crisis if you fall behind.
4. Explore cosigner release options: Some loans allow you to be removed after a certain number of on-time payments. Ask about this upfront.

If your relationship with the borrower changes — say you break up or drift apart — contact the lender. You might be able to negotiate a way out, but it’s not guaranteed.

Cosigner vs. Co-Borrower: What’s the Difference?

It’s easy to confuse the two, but cosigning and co-borrowing are very different.

Here’s a quick comparison:

Cosigners are the backup. Co-borrowers are full partners.

Should You Cosign?

Cosigning can help (or really hurt) depending entirely on how the borrower handles the loan.

Before you say yes, make sure:

• You trust the borrower 100%
• You’re financially prepared to take over payments if needed
• You understand the risks and have a backup plan

Cosigning is a big deal. Done right, it can be a lifeline for someone you care about. But it’s not something you should do lightly. Ask questions, read the fine print, and protect your financial health while helping someone else build theirs.

Want to get smarter about credit? Keep reading:

• How Often Should You Check Your Credit Report?
• Quick Ways to Boost Your Credit Score
• The Fair Credit Reporting Act Explained

Editorial Note: This content is not provided by any entity covered in this article. Any opinions, analyses, reviews, ratings or recommendations expressed in this article are those of the author alone and have not been reviewed, approved or otherwise endorsed by any entity named in this article.

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