If you don’t have stellar credit, you might’ve considered asking a friend or relative to cosign for you, be it for a personal loan, student loan or even credit card. While getting a cosigner can help you gain access to the credit you need while also helping you to establish and/or build your credit, there are several things you should know going in.
What Is a Cosigner?
In a nutshell, a cosigner is someone who guarantees that they will be legally responsible to pay back a debt if the borrower cannot pay. Some of the best people to consider reaching out to are a trusted friend or family member with a good credit history and a solid income history.
When Do I Need a Cosigner?
Getting a credit assist from a cosigner may be necessary to qualify for the credit you are looking for if you:
- don’t meet the minimum income requirements for a loan;
- have no established credit;
- have bad credit;
- meet the minimum income requirements but your debt-to-income ratio is too high;
- are self-employed; or
- changed jobs recently or your income is variable.
How a Cosigner Helps
Applying for credit with a cosigner may help you secure private student loans, auto loans, credit cards and even mortgages that you wouldn’t be able to qualify for on your own.
Getting a cosigner only helps, though, if you pay your cosigned loan as agreed. Doing so will help you to build a good payment history, which will also give your credit score a lift.
You can monitor your credit score as you pay off a cosigned loan by checking your free credit scores, updated every 14 days, on Credit.com. You’ll never be asked for your credit card information, and, along with your scores, you’ll receive expert advice on improving your credit.
If you manage your cosigned loan payments responsibly, you can reap the benefits and watch your credit score climb over time.
What Is a Cosigner’s Responsibility?
Basically, a cosigner’s responsibility is to pay back the debt if the signer does not, plain and simple, and that can include late fees and collection fees. And in some states, a creditor can attempt to collect the debt from the signer and cosigner simultaneously or, in some circumstances, attempt to collect first from the cosigner, including garnishing of wages. State laws vary, so it’s good to check on what rules apply where you live. It’s also good to keep in mind that, if the debt goes into default, it can become a blemish on the credit report of both the signer and the cosigner. The lender must disclose all the cosigner’s responsibilities before that person agrees to the loan obligation.
Is a Cosigner for a Student Loan Treated Differently?
Just like with a personal loan, an auto loan, a mortgage or a credit card balance, your cosigner will be legally responsible to make the payments if you default on your student loans.
Can I Release My Cosigner From Their Responsibilities?
Yes. A release is typically an available option for cosigners, especially for student loans. Many creditors will allow the cosigner to be released from their obligations once a certain number of on-time payments have been made and a credit check finds the signer creditworthy to handle the loan or credit card on their own. Refinancing may also be an option for taking on sole responsibility for a loan.
Be Responsible With Your Loan & Repayments
It’s very important to manage a cosigned account wisely. Pay your account as agreed each and every month. Remember, a cosigner is doing you a favor, and if you should fall behind on payments and the account becomes delinquent, the delinquency will show up on your cosigner’s credit report as well as your own — not to mention their legal liability to pay your debt.
So take a close look at your finances before asking for a cosigner for help with a loan. Do you have the income to easily meet the loan payments each month and for the length of the loan? Assess your work situation. Do you expect to be working at the same job a year or two from now? How difficult will it be for you to get another job if you need one?
Remember your cosigner’s credit record is on the line as well as your own. So only apply for a loan with payments that you feel you can manage responsibly. Make paying a cosigned loan a priority in your budget.