Co-Signing – Why to Never Do It
Credit isn’t exactly easy to come by these days. And if you happen to have a good credit score, there’s a chance that sooner or later you’ll be approached by a friend or family member and asked to co-sign on a loan or credit card for them. By doing so, the person with poor or limited credit is able to leverage your positive score for a better interest rate. But is credit a win for you, the co-signer, as well?
The answer: Not necessarily. While you agreeing to be a co-signer is likely done with nothing but good intentions, the outcome could turn out to be far from favorable for you. We’re talking a decreased credit score, collection agencies coming after you and even potential lawsuits. Here’s a closer look at why you should think twice about co-signing on a loan:
- Lower credit limit: Like we said in the opening, credit is limited these days. So if you co-sign on a loan, you’re debt ratio might get too high. Not only is this unfavorable for your financial situation – after all, you’re responsible for the debt – but it can lower your overall score, resulting in credit repair to get your score back up to what it was.
- Missed payment: Is the person you’re co-signing for reliable? We ask because if the person misses a payment, the collection agency can come after you for it. It’s not what a lot of people have in mind when they agree to co-sign, but unfortunately it becomes a common reality.
- Lawsuits: As a co-signer, you’re just as responsible for the debt as the other signee. So if the other signee defaults on the loan payment, you could potentially be sued for the amount owed.