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| If I cosign for my friend will it lower my chances of obtaining a loan? |
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Last Updated
13th of April, 2010
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Strictly speaking, no. The fact that you are a cosigner in and of itself does not necessarily lower your chances of obtaining a loan in the future. However, even if the cosigned account is paid on time, the debt may affect your credit scores and revolving utilization, which could affect your ability to get a loan in the future.
For example, let’s say the cosigned account is a credit card. If your friend carries a large balance, as the cosigner you may have lower credit scores because of the high revolving utilization of the cosigned account.
In the sense that the cosigned account may give you a greater diversity of credit accounts (one of the components of credit scores), it’s actually possible that the cosigned account could help you get a loan in the future. For example, you would probably benefit if the cosigned account were a mortgage that is paid on-time every month.
If you’re having trouble deciding whether to cosign, think about what likely effect the cosigned account will have on your credit scores. If you’re at all concerned about your friend’s ability to pay, and are not in a position to cover all of his debt in the event that he starts defaulting, don’t cosign. It is best to only cosign with a close friend or relative that you know is trustworthy.
Here’s another, worst case, example. Let’s say you cosign for a friend on an auto loan. If your friend stops making payments, the delinquency or repossession records would damage your credit score. You would be held legally responsible for repayment of the cosigned debt.
Remember: The cosigned account will affect your credit report and scores no matter what because ultimately you are just as responsible for the debt as your friend.
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