Can I Cosign If I Have Bad Credit?

Credit ratings matter when it comes to co-signing loans, since lenders and creditors use co-signing as a method to protect themselves from financial losses. People sometimes benefit from co-signed accounts. However, there are times when a co-signed account makes a bad credit situation worse.

Process

People who have bad credit usually can't be co-signers on loans and credit cards for others. Co-signing for someone essentially means you're willing to take a financial risk that a professional lender refuses to take. People need co-signers because they can't meet a lender's criteria for a good credit risk. Therefore, the co-signer's creditworthiness and income serve as a guarantee for the repayment of a loan or credit card account. That's one reason co-signers need to have good credit histories themselves.

Credit Ratings

You can benefit from a co-signed account if you have bad credit and someone with good credit is willing to co-sign for you. In such cases, you would be the primary borrower or cardholder who is primarily responsible for paying off a loan or credit account. You could use a co-signed account to build a better credit history by making all of the required payments on time. Otherwise, you put the co-signer's good credit rating at risk by making late payments, since the late payments will appear in the co-signer's credit file as well as yours.

Other Options

A family member or friend who wants you to co-sign on a loan or credit card has other options if you don't have a good enough credit rating to be a co-signer. For example, some auto lenders provide loans to people who have low credit scores without requiring them to get a co-signer. However, borrowers usually have to pay higher interest rates for these types of loans. Secured credit cards are available for people who can't qualify for traditional credit accounts. Secured card issuers usually require customers to deposit a certain amount of money into a savings account, which secures the account and establishes a credit line for the cardholder.

Considerations

You could make your financial situation worse by getting involved with a co-signed account if you already have bad credit. That's true even if payments on a co-signed account are never late. For instance, you may have a bad credit rating partly because you have a lot of debt that's lowering your credit score. Adding a co-signed credit card or loan to the mix may cause your score to drop more because of the additional debt. It may be better to avoid opening any new accounts until you pay down the debt you already have.