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Does Co-Signing Affect Credit?

How Co-Signing can Build Credit, or Bring it Down


Question: A family member has asked that I co-sign a loan for him. Is there any effect on my credit -- good or bad?

Answer: Yes, your credit will be affected. Co-signing can be a good or bad thing, depending on how things go.

When you co-sign a loan, that loan will generally appear in your credit report. You’re responsible for it, so other (potential) lenders should know about it; in a worst-case-scenario you’ll be the one making payments on it.

Because you’re taking a risk by serving as the “backstop” for somebody else, banks may be more hesitant to lend to you. It’s not impossible to borrow after you’ve co-signed -- just be aware that it can affect your ability to borrow if things are already stretched thin.

The Good News

On the bright side, co-signing can improve your credit. If you need to build credit, having the loan on your credit report can help beef it up. Of course, the payments need to come in on time -- late payments and defaults will backfire if you’re trying to build credit.

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