As adults we feel an uncontrollable urge to do what we can to help our children and friends. Giving them rides to the mall, helping them with their homework, offering a place to sleep for a few days. We’ve all got that helpful wiring. Unfortunately, it can get us into deep trouble if we’re not careful.
Earlier this week I did an interview with NPR about the dangers of co-signing credit related obligations. Co-signing, as you may or may not know, creates a second obligor for a loan, apartment lease, or credit card. And, the co-signer is just as liable for the debt as the primary signer. There’s no difference.
In many cases the co-signer is doing so as a favor to someone who cannot qualify for credit on their own. Either their credit reports and scores are poor or they simply don’t make enough money for a lender to feel comfortable doing business with them. Enter the co-signer. The co-signer adds a 2nd layer of protection for the lender, which often will approve the application at this point.
Co-signing is not temporary and cannot be undone. You cannot change your mind and simply have your name removed. And, you cannot argue that you never intended to be liable for the debt. Co-signing doesn’t work that way.
When you co-sign you place yourself at risk of negative credit reporting and the potential collection activities of a lender. The debt can be reported to your credit reports. And, the debt obligation will likely be considered in your debt to income measurements, even if you never intended on making the payments.
If you do choose to co-sign a loan you should do so with the expectation of making all of the payments. If you don’t you may find yourself choosing between not making payments and having your credit scores go down the drain. There’s a reason lenders want or require co-signers for some of their applicants. You should take their lead and be wary of jumping into bed, contractually speaking, with the same people.
Michael B. Citron is an internationally known public speaker and author. He lectures for professional associations worldwide. Michael is a serial entrepreneur who is dedicated to living the American dream, and helping others to do the same. His role at DisputeSuite.com has placed him in the spotlight of the credit repair industry. DisputeSuite is the largest provider of technology and education services to the industry, and has been a catalyst in the forward movement to standardize the credit repair industry.
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