Have you ever wondered why you shouldn’t co-sign for someone else? Majority of those who need a cosigner have a bad credit. They need somebody with a good credit to cosign for them to improve their credit score. Some are people who have never had credit before. If they do not get a cosigner, there will be no approval for them.
However, cosigning is not that easy. It demands more than just appending your signature for a friend in need. As a matter of fact, you are taking a great risk. This risk may completely destroy your credit history in the future if care is not taken.
Why You Shouldn’t Co-Sign For Someone Else ; Increased Debt
The debt you co-signed will increase your debt-to-income ratio, affecting your ability to get approved for your own credit cards and loans. This may deny you from getting your own loan when you need one.
Why You Shouldn’t Co-Sign For Someone Else ; They Can’t Qualify Alone
They need a cosigner because their credit history is poor or they have none. When the financial institution demands a cosigner, it means that they do not trust that your friend or relative to pay the money completely. In this case, you may be the scapegoat. If you become the cosigner, you become responsible for any likely debt.
Why You Shouldn’t Co-Sign For Someone Else ; There’s No Real Benefit to You
While you co-sign for the loan, the other party gets it. They drive the car, live in the house, or use the credit card. You might get a boost to your credit score — assuming all the payments are made on time.
Payments on the Co-Signed Account Will Affect You
Cosigning means taking responsibility for somebody else’s spending. If the person overspends and even makes late payments, you are held responsible. This affects your credit history and score negatively. You will also have problem getting approval for your own account. In the worse cases, it takes months before the creditor informs that payments are delinquent, by then your credit history has already suffered terribly.
You Must Pay if he Fails
By co-signing, you’re accepting responsibility for the payments if the person doesn’t pay on time. In a situation that overspending and late payments occur, you will make the payment by yourself
It Breaks Relationships.
If the person is not responsible with the loan or credit card, It can ruin your relationship with him. Your relationship may fall apart before the loan is paid off. Completely avoid mixing finances and relationships.
Getting off the Cosigned Loan Is Very Hard
To get off a cosigned loan is very hard. In most cases, you can only do this when the loan has been fully paid. Or when the other person gets a new credit card account in his or her own name. This means they’ll have to improve their credit enough to qualify on their own. How possible is this? If you choose to cosign, carefully weigh the pros and cons.