Co-signing a loan, questions?

**maat55** · 06-08-2010, 06:27 PM

Do not co-sign a loan. When you co-sign, you are considered the borrower. One late payment affects your credit.

**Entrical** · 06-08-2010, 07:59 PM

I understand that I would be considered the borrower. And I am 100% confident he will never be late. I'm inquiring if just claiming the loan alone will affect my credit even if he's never late.

**AzDana** · 06-09-2010, 01:15 AM

I'm not going to suggest that you do not co-sign. However, I am going to suggest that the $500/month payments be made to you, and then you make sure they get to the bank on time. That way, if there ever is a delay in the payments, you'll know about it before it can affect your credit.
I don't know if a loan, generally speaking, could affect your credit score. However, you might not be able to take out additional loans, finance a car or obtain another credit card while this loan is outstanding. Personally, I would call the bank and ask them what the ramifications would be. If you're going to be doing business with them, they should be happy to provide the facts you need in order to make an informed choice.

**Yogi** · 06-09-2010, 04:36 AM

Originally posted by Entrical View Post

I understand that I would be considered the borrower. And I am 100% confident he will never be late. I'm inquiring if just claiming the loan alone will affect my credit even if he's never late.

I thought you said you were co-signing for your girlfriend. Who is this "he" who will never be making the payments?

**wincrasher** · 06-09-2010, 05:10 AM

There is no difference to you credit if you are co-signing or borrowing it yourself.

So think long and hard. If you have your own goals in the short term, it may be effected.

Good advice above on paying the bill yourself and having this person reimburse you each month. That way, there are no surprises. At the very minimum, get dual statements.

Unfortunately, people recommend you not do this because these arrangements typically go south. This contract you'll write up with this person is essentially worthless - you'd have to sue to have it enforced, plus debtors often just have the judgement and never pay.

People have low FICO scores for a reason - it's not unfairness - and there is a reason why it takes so long to recover - people can change their behavior in the short term, but if something goes haywire, they often return to their old ways.

Good luck to you!

**disneysteve** · 06-09-2010, 05:15 AM

It sounds as if you already realize that this is an incredibly huge mistake on your part but plan to proceed despite any advice to the contrary. So the question is this: You are going to borrow $5,000 to help a friend and want to know how that will affect your credit score. When you apply for the loan, they will pull your credit. That will ding your score a bit. Assuming you are approved for the loan, that will lower your score some more since you will then have $5,000 in outstanding debt that you didn't previously have. And, of course, if you are late with any payments, that will lower your score even more.

Definitely, your friend should make her payments to you and you should make the payments to the lender. Make sure that the statements come to YOU. Make sure that YOU are set up as a contact person on the account. Make sure that YOU have online access to check the status of the account. This is YOUR loan and you need to treat it accordingly. It is YOUR responsibility to make the payments and keep the loan in good standing.

**am_vanquish** · 06-09-2010, 05:35 AM

I agree with what everyone else has already said, and it is good advice. It's also pretty obvious how bad this could turn out for you.

However, since it sounds like you're going to do this anyway, I'll offer a "best-case-scenario" situation for you to consider. If everything goes as planned, this loan will be paid off in 10-11 months at the most. It will probably be 8-9 months if you're applying overtime & tax returns. Keep in mind that 15% of your credit history is length of credit - which is usually determined by averaging the length of all your credit records. So, let's pretend that the only credit you've ever had is that credit card you've been paying every month for 9 years. For simplicity, I'll also assume that it takes 12 months to pay off this loan. Then your "length of credit" is currently (9 years) divided by (1 account) = 9 years. Add after 12 months it will be (10 years CC + 1 year loan) divided by (2 accounts) = 5.5 years. You just reduced your average account length pretty drastically. Add in what DS already mentioned (dinged for credit pull, dinged for increase in outstanding credit, dinged short-term for increase in utilization ratio), and there isn't much room for you credit score to improve any from this situation. So best case scenario is you break even. Much larger probability that your score falls. How much it falls will be determined by the actions of you & the girlfriend.

Also consider the human aspect. Having a debt contract with your girlfriend seems like an odd situation to me. It throws off the relationship balance - changing you from equals to master & slave (over-exaggerated, but hopefully you see the point). You may feel differently, but I wouldn't want to attach strings like that to my love-life.

From what I see, there's a whole lot of down-side and not much up-side. Help me out here - what do you see as the up-side to doing this?

**segmond** · 06-09-2010, 06:57 AM

If you are certain they will never be late, then why even bother with this thread?

Their rating will not affect your rating because you cosigned for them.

The only thing that will affect your rating is late/missed payments or default on the loan, so if you are 100% certain they will pay and pay on time like you said, then end of discussion go sign it for them!

**disneysteve** · 06-09-2010, 07:00 AM

Originally posted by segmond View Post

If you are certain they will never be late, then why even bother with this thread?

Their rating will not affect your rating because you cosigned for them.

As I noted above, just applying for the loan affects your score and getting the loan affects your score, even if all payments are made on time. I think that is what OP was asking about.

**wincrasher** · 06-10-2010, 11:55 AM

You have to ask the upside? Appreciative sex is what it is!

**irmanator** · 06-10-2010, 11:33 PM

Originally posted by wincrasher View Post

You have to ask the upside? Appreciative sex is what it is!

too funny

**disneysteve** · 06-11-2010, 05:01 AM

Originally posted by wincrasher View Post

You have to ask the upside? Appreciative sex is what it is!

I was going to post the same thing but chose not to. Obviously, we are all thinking the same thing.

**Fizgig** · 06-11-2010, 06:48 AM

It's pretty rare for a guy to co-sign for his girlfriend. (Assuming OP is a man - could be wrong) Usually it's young women with low self esteem who walk into that trap.

**disneysteve** · 06-11-2010, 07:36 AM

Originally posted by Fizgig View Post

It's pretty rare for a guy to co-sign for his girlfriend. (Assuming OP is a man - could be wrong) Usually it's young women with low self esteem who walk into that trap.

That is true. Suze Orman talks about this topic frequently. Women are more prone to make financial mistakes like this out of guilt or a misplaced sense of obligation. Suze always tells callers that they need to say NO out of love rather than YES out of guilt. That advice certainly fits here even though this is a guy stuck in this situation.

Co-signing a loan, questions?