Cosigning a mortgage is a lot like a marriage; for better or worse, you're generally stuck with the borrower on the loan. When you cosign, you are essentially accepting all of the responsibility of being a borrower, including the effects on your credit score. Don't sign on the dotted line unless you are prepared to repay the mortgage for the borrower or watch your credit score tumble.
As a cosigner, the mortgage and its payment history are recorded on your credit report as well as the credit report of the primary borrower. Therefore, all the payments the primary borrower makes show up on your credit report. Your payment history accounts for 35 percent of your credit score. If the primary borrower always pays on time, your credit score could improve because you are credited with keeping the mortgage payments current. However, if your primary borrower is forgetful and makes late payments, your credit report will report it as if you were responsible for the late payments.
You're on the Hook
Since you're on the hook for the mortgage if the primary borrower fails to pay, your credit score treats you as owing the money. This can lower your credit score because the amount you owe has increased significantly. It can also hamper your ability to get a loan because lenders see you are already having the mortgage as debt for which you are responsible. Therefore, be wary of cosigning a mortgage if you expect to be looking for a loan of your own in the foreseeable future.
Other factors that affect your credit score include your mix of credit and your length of credit history. Depending on your current financial situation, cosigning a mortgage could increase your mix of credit, which could offset some of the harm that having such a large amount owed has on your credit score. In addition, as time goes by, you could benefit from having a longer credit history due to the mortgage. However, if the mortgage has a poor record of on-time payments, the harm will likely outweigh benefits.
Only the Mortgage Affects Your Credit Score
Only the events directly related to the mortgage you cosigned affect your credit score. For example, if the primary borrower on the mortgage declares bankruptcy, your credit is not affected as long as the mortgage payments remain current. For example, if the primary borrower declares bankruptcy, and you pay the remaining $50,000 to pay off the mortgage, your credit score is not be harmed. However, if you are unable to take over the mortgage payments and the mortgage payments are late or you default, your credit score will tumble along with the score of the primary borrower.
Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."