Co-signing a lease can be a generous way to help out a friend, relative or loved one. If your friend does not have good credit, or does not meet a landlord’s income requirement, you can secure the rental for her by guaranteeing she will fulfill the terms of the lease. But it’s a step that you should consider carefully.
Initial Reporting
The mere fact that you have co-signed a lease is very unlikely to be reported to the credit agencies, and so your credit will not be affected simply by the act of co-signing. If your friend or relative continues to pay the rent and abide by all the terms of the lease, your credit is safe. Your chances of obtaining a loan will be the same as they were before.
Problems
However, if your friend cannot meet a rental payment and becomes delinquent on the lease, you could well face problems. If unpaid rent is referred to a collections agency, this will end up on your friend’s credit report and yours as well, as co-signer. Such a delinquency will remain on your credit report for up to seven years, even if the amount is subsequently paid in full. If your friend is evicted, the court judgment will also appear on your report.
Loss of Control
When you co-sign a lease, you may well put yourself in a situation over which you have no control. While you may trust the person you co-signed for, it may be that he will rely on a roommate to help him pay the rent. If the roommate is unreliable, your credit may end up being wrecked by someone you’ve never even met.
Safeguard
Before you co-sign, you must ask yourself what you will do if your friend or relative ends up unable to meet her obligations. If you take the very serious step of co-signing, you should be prepared to take the financial hit if the rent needs to be paid. This may end up being the only way to safeguard your credit. You also need to talk this through seriously with your friend to establish how this might impact your relationship.
