A good credit score is essential for virtually everything today. Potential landlords will pull your credit before agreeing to rent you an apartment or house, lenders for anything from a mortgage to a car loan will require you to have a good or even excellent credit score before agreeing to extend financing to you, and even potential employers may shy away from you if your credit is not good. Thus, if you have a good credit score, you have little to nothing to worry about when it comes to finding a new job, buying a home or renting an apartment, or even establishing an account with the local utilities when you move somewhere.

However, if your credit is not as good or your credit record has blemishes on it, then many times lenders or landlords will encourage you to find a co-signer who will agree to also sign your application for a rental apartment, mortgage, car loan, or even to establish an account with a utility. By doing so, the co-signer agrees to be bound (i.e. responsible) for the payments on the loan or financing if the borrower defaults (i.e. does not pay) on that lease or loan. Therefore, if you agree to co-sign for a friend’s apartment and your friend is short on rent for one month, then his or her landlord can and will look to you to cover the shortfall. You may not have even thought twice about it when your friend or family member asked you to co-sign the lease with them. However, as someone with a good credit score, you should always be extremely careful about co-signing anything for someone else. When you co-sign a loan, you often are getting far more than you may have promised the other person or bargained for.

Someone Likely Needs a Co-Signer Because They Cannot Qualify for Financing On Their Own

 When you are asked to co-sign a lease or loan application, there is usually a reason for that: the person asking you to co-sign his or her application cannot qualify for the loan or the lease on his or her own. If a lender or potential landlord is asking your friend or family member for a co-signer, that is an indication the lender/landlord does not believe the person asking you to co-sign his or her application can make the required payments on his or her own. This is a huge red flag for you because, regardless of how close you are to that person, he or she cannot get approved on his or her own. This could spell trouble for you as the co-signer down the road.

You Receive No Benefit from Co-Signing the Loan

The only person that receives any benefits when you co-sign a loan application, regardless of the purpose, is the borrower for whom you are co-signing. That person gets a mortgage, car loan or can rent an apartment he or she otherwise would not have been able to get without your help. As the co-signer, you will not be able to drive that car or live in that apartment or home. Instead, you help someone else to obtain something he or she could not qualify for on his or her own.

Payments on the Account You Co-Signed Will Affect Your Own Personal Credit Score and Finances

If you co-sign a debt for a friend and your friend misses a payment, there will be a missed payment on your credit report. Your credit score will also likely drop because of that missed payment. When you co-sign a debt for someone else, any missed or late payments or defaults will count against you as if the loan were in your name alone. Your own debt level and debt to income ratio will also rise on your credit report, which could result in you not being approved for financing you may decide to apply for on your own.

You Are Responsible if the Borrower Does Not Pay

If the borrower that you co-sign a loan for defaults on the debt, then you are on the hook. A lender can come after your paychecks or assets in many circumstances if your friend or family member stops making payments. This is because a co-signer is obligated to the same extent as the original borrower, so if that borrower stops paying, then more than just your credit score, but your own assets and income may be on the line as the co-signer on that loan.

Getting Yourself Removed from a Loan You Co-Signed For Is Extremely Difficult, if Not Impossible

It is nearly impossible to be taken off a loan you have co-signed for once financing has been extended by the lender. Like any contract, a loan that you co-signed, even just as a favor to someone else, is legally binding. By co-signing the documents, you are bound just as much as the friend or family member you were doing a favor for. Thus, you often cannot be taken off the loan if your friend or family member starts missing payment and you start to regret doing him or her a favor and co-signing the loan. Instead, and particularly if your friend or family member is having trouble paying the loan back, no lender is going to be eager to remove you from the debt that you co-signed on. To be removed as the co-signer, the borrower often has to demonstrate he or she can make the payments on his or her own, which is doubtful given that the person needed a co-signer in the first place.