How Co-Signers Can Ruin Your Credit
Laura • onFinance 8 years ago • 3 min read

Your friend or loved one probably has the best of intentions when they ask you to co-sign their loan or credit card. Unfortunately, co-signing can go very wrong for you. Your good credit is the reason they want you to co-sign, but putting your credit on the line could end badly for you and your credit score.

How Co-Signing Works

When someone asks you to co-sign for them, it’s because they don’t qualify for the loan or credit card on their own. This could be because they have a limited credit history or a bad credit history. They can only be approved if someone else guarantees the loan.

Co-signing a loan or credit card is just like applying for the credit card yourself, except you don’t really get the benefit of whatever the loan is used to buy. The risky part is that you’re on the hook for the payments because your name is also on the application.

Bad Payment History Goes On Your Record

Because you co-signed the credit card or loan, the entire payment history will also be listed on your credit report. If the other person misses a payment, the late payment notification will be added to your credit score. If they default on the payments and the account is charged-off, it goes on your credit report. If the vehicle is ultimately repossessed, it goes on your credit report. Since you’re just as much responsible for monthly payments, you’ll also be penalized when the payments aren’t made.

Lenders Come After You For Payment

If the person you co-signed for doesn’t tell you they’ve missed a payment, you may not find out that payments are behind for several months when lenders get more aggressive about collecting in past due accounts. By that time, you might have to come up with hundreds of dollars to get the debt caught up if you want to avoid further damage to your credit. Lenders will start calling and sending letters to get you to come up with the payment. When an account gets seriously delinquent, a creditor may sue for the balance and if they win, a judgment goes on your credit report. Your wages could be garnished and your bank account could be levied.

Bankruptcy Leaves You on the Hook for Everything

Debtors are allowed to include joint debts in a bankruptcy proceeding. If the court discharges the debt, the debt doesn’t go away for someone who co-signed. Instead, you’d have sole responsibility for paying back the entire debt unless you file bankruptcy, too. The bankruptcy listing won’t go on your credit report since you weren’t the one who filed bankruptcy. But, you may also be forced into bankruptcy if you can’t handle the debt some other way.

Co-signing a debt for someone who doesn’t otherwise qualify is rarely a good idea unless you are trying to repair their credit. There’s a reason that person can’t get a debt on their own – because the lender doesn’t trust them to pay back the balance. Maybe they've had a debt settlement in the past or other bad records on their credit report. You probably shouldn’t put your good credit on the line for someone who doesn’t have a habit of paying their debts on time.


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  • Cassandra 7 years ago

    I stupidly co-signed on a loan for a former best friend only to have her default on her loan causing MY credit score to drop and putting a bad mark on my flawless credit report. Needless to say her and I have gone our separate ways. Never mix money and friends! It's disastrous! Now I've had to work on do-it-yourself credit repair which is a slow process, but ultimately necessary to get my financial life back in order so my husband and I can purchase our first home within the next couple years.