If you’re thinking about cosigning for a loan, it’s important to understand that there are many risks involved with doing so.
Before cosigning, you want to make sure that you are committed to the financial responsibility that goes with that cosign. If the borrower does not meet the terms of the loan, the fact that you cosigned can hurt your credit.
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When a cosigner misses a payment, the delinquent can have a negative impact on your credit.
This will happen whenever a payment is more than 30 days past due.
Now, of course, the borrower can let you know that they are unable to make the payment, though you’ll have to have the funds readily available if you don’t want a negative impact on your credit.
If the person you cosigned with is unable to or stops making loan payments on their car loan altogether, it can lead to repossession. When a vehicle gets repossessed, it can leave a nasty mark on your credit.
Repossessions will typically happen after a borrower misses a string of payments. If a borrower can’t communicate that they are in financial distress, you may be able to work out a financial solution before their car goes into repossession. However, you may need to be able to come up with several car payments or deliver a payment to the lender in a lump sum amount to avoid the negative impact it can have on your credit.
Can Cosigning Hurt My Credit?
When cosigning on a loan, you will have the co signer’s credit account appear on your report. The debt will also become your financial burden.
This added debt can drag your credit score down and may even reach beyond your credit score. If you end up applying for a large loan, such as a mortgage, the lender will probably want to look at your debt-to-income ratio to determine if you’re able to pay the mortgage safely.
If you have more debt on your report because of the cosign, it can be bad news for your DTI ratio. For example, most lenders won’t approve someone for a mortgage if they have a DTI that is over 43%.
There are many reasons why people will cosign with others. We see it happen all the time between parents and children, especially when children are getting their first apartment or vehicle.
However, you may consider telling that person about tradelines for sale to boost their credit if you believe cosigning might not be beneficial for you.
If they have a low credit score, a tradeline can get them back into a place where they can climb out of high-interest rate purgatory and acquire loans without the need for a cosigner.
Here at Personal Tradelines, we help all kinds of people increase their credit scores with the use of authorized user tradelines. If you’re interested in learning more about how tradelines can help you or your family, make sure to drop us a line.
