Does Having a Co-Signer on a Car Hurt Your Credit Score?

A co-signer can help you get a car loan you might not be able to get on your own.

A co-signer can help you get a car loan you might not be able to get on your own.

Having a co-signer on your loans shouldn't hurt your credit score. In fact, it could help it since the co-signer might make it possible for you to get a loan that you wouldn't otherwise be able to take out, which means you can build on your credit history. The main risk is to the co-signer himself. He takes the same risk you do if something goes wrong with the car loan. Even if things go well, his ability to borrow could be hampered by his obligations to your loan.

Understanding Co-Signers

Car lenders look at the car you're buying, your income and your credit score when deciding whether or not to lend you money. If your income or your credit doesn't meet the lender's standards, getting a co-signer can help you get the loan. Usually a co-signer is someone with good credit and ample income. That way, the lender will include the co-signer's income and credit as a part of the loan package that it considers.

Benefits of a Co-signer

The key benefit of a co-signer is that his credit and income can determine your loan. This means that you can get qualified for a car loan with less down or a lower interest rate. Doing this makes sense for the lender since it can spread its risk between you and your co-signer and bank on the co-signer's ability to repay the loan if you can't. Since the lender takes less risk, it can afford to charge less for the loan.

Co-signers and Your Credit

From the perspective of your credit, whether or not you have a co-signer once you get the loan doesn't matter. Since you're still a signer on the loan, you're responsible for it. This means that it should get reported on your credit report just like any other loan. If the loan gets paid on time and reliably, it will show up as a positive account on your report and help your credit score. Similarly, if you fall behind on your payments, or stop making them altogether, your credit score will suffer.

Being a Co-signer

The story for the co-signer is different. While he will also get credit for having a paid-on-time account -- assuming that it does get paid on time -- there are also some real drawbacks. If he goes to apply for any other credit, the fact that he is already on the hook for your loan will count against him as lenders look to see how much money he has left over to make their payments. In addition, if you don't pay on the loan, it will damage his credit just like it does yours.


About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

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