How Does Cosigning Hurt Your Credit?

When a relative or a friend asks you to become a co-signer on a loan, you may instinctively agree straight away, willing to help them in a tough situation. If you know the process and do it responsibly, cosigning may really become a helpful tool for your close friends or family members.

Those with a poor or limited credit history or poor ratings may rely on your support and get the necessary lending option. On the other hand, there are certain things you should keep in mind before you sign on the dotted line, as becoming a co-signer might also affect your finances and even hurt your credit.

How Does Co-Signing a Loan Work?

What is cosigning a loan or a credit card? This process means you take responsibility for loan repayment in the event that the initial borrower is unable to do so.

Usually, recent graduates, friends, or relatives with little or no credit history can seek a co-signer to get approved for a loan with reasonable interest rates.

If their scores are less-than-stellar or they haven’t established their credit history yet, getting a co-signer can help them receive more favorable lending conditions so that their monthly payment is affordable for them, but it also can hurt you.

If your personal credit score is excellent and your credit history is in good standing, you may accept this offer and become a co-signer. You sign the loan agreement with the borrower.

When Should I Become a Co-Signer On a Loan?

Before you decide to sign the contract together with the borrower, you need to talk with this person to make sure they have a certain debt payoff plan. If a borrower can’t afford to make regular loan payments, you may have trouble with your own score.

Try your best to avoid your credit being hurt. The report issued by Experian on Obligations When Signing and Cosigning the Loan states that the impact on the credit can be positive or negative.

Find out how long you will be accountable for this agreement and whether you may be released from this responsibility after a series of consistent payments by the borrower. Every bank or lending institution may have different requirements concerning co-signers and their impact.

Pay attention to the rules and avoid getting hurt, as the unpaid debt of the consignee may remain on your own credit report for quite a long time.

When Cosigning Can Hurt Your Credit Score

Sometimes, cosigning a loan or a credit card may impact your rating negatively. When you cosign a rental agreement, a credit card, or a personal loan, you take on responsibility and a legal obligation to pay the debt off if the initial borrower defaults. According to statistics, this decision might hurt your rating if:

  1. The account is sent to collections. If this happens, it may hurt credit even if you didn’t know that the borrower didn’t make on-time payments.
  2. The cosigned vehicle or property is repossessed. In case a property or vehicle was repossessed, it may also hurt their credit scores no matter if you utilized it. So, take it into account.
  3. Payment is over 30 days past due. Late loan repaying will most likely be reported to the credit reporting agency. The lender wants to protect their funds, so every late repaying that occurs on the credit report may affect your own score as a co-signer.

When Can Cosigning Help Improve Your Credit Score?

On the other hand, you may even boost your credit rating and lower the interest rate if you become a co-signer. It may not be the only way to boost your credit, but you may try this option, provided the primary borrower can afford to repay the debt and won’t let you down. You may stop getting hurt and improve your rating when:

  1. The new account adds to the credit mix. If you manage several types of credit, such as revolving types of credit, and personal or installment loans, it may improve your rating and add to your credit mix.
  2. The debt is repaid on time. If the initial borrower pays the debt off according to the repayment schedule, it will demonstrate to potential creditors that you are a responsible person.
  3. The payments are conducted on time. You may already know that your payment history is one of the most significant factors in scores, and you shouldn’t let anybody hurt it. If the borrower makes consistent payments, it will also boost your credit.

What to Consider Before Consigning?

Cosigning should be taken with full responsibility. On the one hand, you may want to help your relative or friend qualify for a lower interest rate on a loan or credit card. On the other hand, this decision may affect credit as well.

This decision may hurt or vice versa, positively affect the cosigner’s credit score. Everything depends on how the primary borrower manages their debt.

On-time regular debt payments can help improve the credit scores of borrowers. If the account is sent to collections or becomes past due, it may hurt the cosigner’s credit as well. It doesn’t mean you have to be a co-signer forever.

It depends on the service provider. Co-signers can remove themselves from the contract once a series of consistent debt payments are conducted.

Each payment should be made on time.


The main disadvantage is that the account may go to collections or the borrower may default on debt payments and it can negatively affect or hurt your financial life. As a result, the credit score of the co-signer may be damaged as well.

The primary borrower obtains the credit, while the co-signer is only responsible for the debt payoff if the borrower defaults or can’t make consistent payments. So, you should take responsibility for this decision.

It may be useful to cosign a loan if you are confident in the person you cooperate with. But be careful, it can hurt you. If the borrower can afford on-time payments and you want to help this person, it can be a smart choice.

Typically, if a borrower makes a series of consistent loan payments without issues, the co-signer may get out of this agreement. But you need to discuss exact terms with the local bank or your lender.

You shouldn’t agree to sign the dotted line just because this is your best friend or a family member. Think about your personal built-up credit history and the ability of this person to make regular payments so that your own score doesn’t get hurt.