How Does Co-Signing for Credit Work?

Look at the account terms before you co-sign.

Look at the account terms before you co-sign.

So, your friend or family member has asked you to co-sign on an account because she can't qualify on her own. Before you say yes, you'll need to understand what being a co-signer means. You can't just sign the papers and walk away if you're the co-signer. Once you've taken the plunge, you're along for the ride until the account is paid off.

Your Responsibilities

You're taking on the responsibility for that debt or lease, just the same as the person you're co-signing for. Since the person didn't have good enough credit on her own, your credit is what's making the deal happen -- and the creditor will turn to you if problems arise. The creditor will come after you if the person doesn't pay or do what she's supposed to and won't care that the account wasn't in your name. Also, it then becomes your problem to get your money back from the person who originally didn't pay after you pay the co-signed debt.

Credit Effects

You're risking your credit once you sign on the dotted line. The creditor will report the debt on your file with the credit bureaus. If the person pays on time, your score will improve. But if she stops paying or pays late, your credit score will take a hit. The new debt will count as part of your debt load, too. Say you want to get a car loan. The lender will look at how much debt you have -- co-signed items included -- when deciding whether you qualify. The lender won't care that you're not currently paying the co-signed debt, just that you have it.

Limited Control

You won't have much control over the co-signed account. You might not even know the person is behind on payments until it's too late. Most of the time, the person you co-signed for is who gets the bills and makes account changes. For example, unless you've co-signed for someone under 21, she can get a credit increase on a credit card without your input.

Considerations

Before you co-sign anything, examine both the product being applied for, as well ast the person for whom you're co-signing. Don't be afraid to call the lender and ask what choices and rights a co-signer has. If you don't think the person can handle the payments, co-signing is not a good idea. Also, make sure you can afford the debt on your own in the event something happens to the person. If the person loses her job, for example, she might not be able to pay the bills, even if she's usually very responsible.

About the Author

Anna Assad began writing professionally in 1999 and has published several legal articles for various websites. She has an extensive real estate and criminal legal background. She also tutored in English for nearly eight years, attended Buffalo State College for paralegal studies and accounting, and minored in English literature, receiving a Bachelor of Arts.

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