Good Neighbor Tips. A blog by Erin Doan, Erin Doan State Farm Insurance, Scottville;www.erindoan.com.
Your friend or family member wants to take out a loan — but they don’t qualify. They could, however, if someone co-signs, so they ask you. Before you jump in to help, understand how the decision potentially impacts your credit. Consider the following carefully.
What Happens When You Co-sign
There are potential risks when co-signing a loan.
- You are 100% responsible for the debt. When you co-sign, you agree to pay the loan back in full — plus any late fees or collection costs — if the primary borrower defaults or misses just one payment. If you can’t pay, the lender could sue you or garnish your wages.
- It can lower your credit score. The primary borrower’s late or missed payments can prevent you from qualifying for personal loans or other lines of credit in the future.
Before Co-signing: Factors to Consider
Think about the following before agreeing to co-sign a loan.
- Is the borrower able to make payments on time? If the primary borrower doesn’t have a steady source of income, making on-time payments may become an issue.
- How can you protect your credit? Ask the borrower to make any missed payments within 30 days to ensure your credit score (theirs, too) doesn’t take a hit.
Your Investment Is Key
If you’re comfortable co-signing a loan, treat the debt like it’s your own.
- Set a timeline. Agree on a specific date to get your name off the account. To do this, the primary borrower must refinance the loan or close the credit card.
- Monitor the account. Review online statements to make sure the primary borrower is regularly making payments.
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