What Effect Does Being a Cosigner Have on My Credit Report?

In some situations, a cosigner may be required in order to approve an application for a loan or line of credit. You may need a cosigner if you do not have established credit that would allow you to qualify for a loan. You may also be asked to act as a cosigner for someone else if you have good credit. Either way, being a cosigner can have both positive and negative effects on your credit.

Negative Credit Marks

One major factor in making the decision of whether you should agree to become a cosigner is the possibility that being a cosigner could negatively impact your personal credit report. You should carefully consider the character of anyone you cosign with, notes Bankrate.com. Should you cosign for someone who is not responsible about making regularly scheduled payments on time, late payments and nonpayment may be reported on your credit report, even if you are not directly responsible for the loan payments. Over time, these negative reports can lower your credit score and affect your ability to apply for credit in the future.

Credit Availability

Cosigning a loan or line of credit for someone else can also affect your own debt ratio. If you attempt to refinance a loan or apply for new credit loan in your name, you could run into complications when the bank analyzes your debt levels relative to your income. Since any loan you cosign appears on your credit report, the payment amount may be automatically included in your debt ratio. If your debt ratio is too high, you may not qualify for new credit unless you can provide canceled checks or other proof that you are not personally responsible for the loan payments.

Taking Over Payments

If you do choose to cosign a loan for someone else, you should consider whether you would be able to afford the loan payments if the main borrower is unable to fulfill the financial obligations. Even when you take care to cosign only for someone you consider to be financially responsible, unforeseen events like job loss or injury can render anyone incapable of meeting financial responsibilities. In order to protect your own credit rating, it may become necessary to take over payments yourself until your cosigner is able to recompense you.

Building Credit

Cosigning a loan or credit card can also have positive effects on your credit report. Whether you already have good credit, or you need to build credit in order to get your scores up, cosigning can sometime help. Choosing a cosigner with a solid credit history and good credit scores can help boost your own credit rating when you make your payments on time for a car loan, student loan or credit card, according to Experian.