Helping someone obtain an apartment by co-signing may seem like a good idea on the surface, but such generosity does come with certain risks. A co-signer is legally responsible for a debt if the main borrower is unable to pay it. Co-signing can affect your credit now and ultimately, may cost you money in the future.
Federal law requires creditors to obtain permission from you before they access your credit file. Once you sign a leasing agreement as a co-signer, the landlord will check your credit. This will be a hard inquiry, meaning it will result in the appearance of an inquiry on your credit report that is factored into your credit score. An inquiry may or may not lower your credit score a small amount. It depends upon how many other inquiries are on your report and the other data found in your credit file. Inquiries remain on your credit report for up to two years, but the FICO credit scoring model only considers inquiries from the previous 12 months when calculating your score.
By co-signing a lease, you agree to pay the rent and other expenses associated with the apartment rental if the lessee should default. This means the landlord can pursue uncollected monies from you if he cannot obtain payment from the renter. This can be especially costly if the tenant skips out on the lease altogether or causes damage to the rental property. You are then responsible for those bills.
Landlords often report unpaid debt to a credit bureau. The debt will appear on the credit report of the tenant but it will also appear on the credit report of the co-signer. If the landlord places the debt with a collection agency, a collection account will also appear on the co-signer's credit report. This will negatively affect your credit and result in a lower credit score. Negative accounts from unpaid debt can remain on your report for up to seven years, even if you later pay them off.
Only co-sign for an apartment if you have the financial ability to cover the debt yourself. The tenant may be able to afford the rent and expenses now but if that changes before the lease is up, you're on the hook for it. Depending upon the amount owed to the landlord, you may be sued for it. The landlord will receive a judgment against you and the tenant. A judgment will appear on your credit report as a public record and further damage your credit score. It will also give the landlord the right to pursue your assets to pay the debt.
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