How to Repair Credit Damage Due to Cosigning

Cosigning a loan makes you legally responsible for repayment.

Cosigning a loan makes you legally responsible for repayment.

The main risk of being a cosigner on a loan is that the loan recipient may fail to make payments. A cosigner is legally responsible for repayment of 100 percent of the loan -- even if he receives no benefit from the loan. If your credit is damaged by an irresponsible cosigner, you may take immediate steps to prevent it from getting worse. Complete repair, however, can take time.

Step 1

Resume timely payments. Fair Isaac Corp., creators of the FICO credit score, consider payment history to be the most important part of your credit score -- representing 35 percent of the total score. Regardless of who was responsible, if you or your fellow cosigner miss payments on a loan, your score can take a dramatic hit. Getting back on track with regular, timely payments can begin the process of credit repair.

Step 2

Pay off the debt in full. If you can afford to pay off the debt entirely, you can help an additional 30 percent of your credit score, according to the FICO scoring model. The size of your debt is the second-largest component of your FICO score, so eliminating the debt for which you cosigned can quickly help repair your overall score.

Step 3

Negotiate with your creditor. While the three major credit reporting agencies -- Experian, TransUnion and Equifax -- may report only accurate information, they can only report what creditors tell them. Ask your creditor if it will report your account as being in good standing if you pay off the debt, either over time in installments or upfront with a lump sum. It's possible that a lender will grant you this concession in exchange for payment. At the very least, be sure that your credit report reflects the account as being paid in full once you make final payment.

Step 4

Continue and repeat. Credit reports are snapshots in time. The more time you can put between yourself and the loan for which you cosigned, the less effect the loan will have on your score. A consistent history of timely payments and low debt levels will improve your credit over time. In addition to the responsible activity, the length of your credit history is important, representing 15 percent your FICO score.

About the Author

After receiving a Bachelor of Arts in English from UCLA, John Csiszar earned a Certified Financial Planner designation and served 18 years as an investment adviser. Csiszar has served as a technical writer for various financial firms and has extensive experience writing for online publications.

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