Does Co-Signing Affect Your Credit?

by Anza Goodbar
(last updated November 22, 2011)

Credit is an essential part of today's society. It is necessary when renting an apartment, buying a car or applying for a mortgage. A co-signer may be required if there is an insufficient credit history or a low credit score.

Before co-signing on a financial obligation keep in mind that you, as the co-signer, are 100% responsible for the debt if the purchasing party defaults. Auto loans, school loans, and mortgages all report to credit tracking agencies so it is important that each payment is made on time. Rental history does not report to credit unless the lease goes into default and collection efforts are employed to collect the balance of the lease.

More than 80% of all financial obligations that have a co-signer go into default. Before agreeing to co-sign on a loan or other financial debt, be certain that you can absorb the additional monthly payment into your budget. If not, your credit rating could be in jeopardy. Any payment that is more than 30 days late will record a negative item on your credit report.

In order to prevent late payments on a debt you have co-signed for, set up an auto payment to be deducted from a checking or savings account each month. If this is not possible, you may want to make the payment yourself and have the purchasing party make payments directly to you, so you can monitor the payment history.

Credit reporting agencies do not factor in the difference between your personal debt and the debt you have co-signed for; negative entries all report the same. Once an entry is attributed to your credit report, it can remain on your report for up to 10 years.

Removing negative entries on your credit report can be time consuming and frustrating. If payments fall behind, once they are caught up, you can make your case to the debt holder and respectfully request removal of the negative entries; however, this is totally up to their discretion.

Protecting your credit rating is on of the most important aspects of your financial life. Lower credit scores result in higher interest rates on loans and can cost you thousands of dollars over the course of a mortgage. Be careful before agreeing to take on additional debt by co-signing for a friend or family member. If the loan defaults and the creditor cannot collect from the purchasing party, they have every legal right to pursue payment from you.

Author Bio

Anza Goodbar

Anza is a single mother of four who makes her home in Colorado. She enjoys writing, hiking and is an avid football and hockey fan. She is the owner of a virtual business services company; writing is just one of the many services her company offers. ...

MORE FROM ANZA

Re-establishing Credit After Bankruptcy

Credit scores change daily based on the information provided to credit bureaus. After a bankruptcy it is important to start ...

Discover More

Snicker Doodle Cookies

If you're looking for a variation on a traditional sugar cookie, snicker doodles may be a great choice for a holiday cookie ...

Discover More

Environmentally Safe Pest Control

Over time pests have become resistant to chemical forms of control. Many chemicals used for pest control also carry an ...

Discover More
More Money Tips

How a Bad Credit Rating Can Affect Your Bank Account

A bad credit rating can affect your life in many ways. If you live in the UK, here is one way that you can help to rebuild ...

Discover More

Using Credit Wisely

Credit is quickly becoming a staple of mainstream society. It is a tool that can either build up your financial situation or ...

Discover More

Re-establishing Credit After Bankruptcy

Credit scores change daily based on the information provided to credit bureaus. After a bankruptcy it is important to start ...

Discover More
Comments

If you would like to add an image to your comment (not an avatar, but an image to help in making the point of your comment), include the characters [{fig}] in your comment text. You’ll be prompted to upload your image when you submit the comment. Maximum image size is 8Mpixels. Images larger than 600px wide or 1000px tall will be reduced. Up to three images may be included in a comment. All images are subject to review. Commenting privileges may be curtailed if inappropriate images are posted.

What is 5 + 0?

There are currently no comments for this tip. (Be the first to leave your comment—just use the simple form above!)