Understanding FICO® Scoring

[LV]

Howdy, I have been thinking about cosigning on a loan. I understand that if there are missed payments, my credit score will be hit and that both parties have liabilities for the loan. Does cosigning for a loan effect my credit score any more than if I were to take out the loan myself? In other words, does the other parties poor credit score reflect on my good credit score? Thanks

[Timothy]

It affects you just like you missed the payment. IMHO have the person send you the payment and/or make it so you can both monitor the account onlines..

It has the same affect as you took out the loan on your own.

The other persons score will not touch yours unless they miss a payment

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LV wrote:
Howdy, I have been thinking about cosigning on a loan. I understand that if there are missed payments, my credit score will be hit and that both parties have liabilities for the loan. Does cosigning for a loan effect my credit score any more than if I were to take out the loan myself? In other words, does the other parties poor credit score reflect on my good credit score? Thanks

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[Noah_Bodie]

Simply cosigning won't adversely affect your score, but I daresay more than a few in here can relate at least one experience, either happened to them personally or happened to someone they know personally, involving a cosigned loan that went bad.

Coworker of my wife, and 2 instances within family, led to 3 cosigned loans going bad. All 3 were for cars.

Wife and I have given money to relatives, under the auspices of lending the money to be paid back later. Each time, I ask my wife the stupid question of, "OK, but you know we're giving this money away as it won't ever get paid back. I'm alright with that if you are. If they wanna say 'borrow', fine. Just means when they don't pay it back, they'll be reluctant to ever hit us up again for money."

Rant over. Climbing down from soapbox. Please chop up and use for firewood.

[jessicaldale]

Do on time payments get reported on both parties' credit?

[dog]

yes, if the creditor reports, it will report on your cr's too. cosigning is no different than taking out a loan for yourself, other than the account will report as a joint account.

[Noah_Bodie]

A joint CC, car loan, home loan, LOC, etc. with a husband and wife makes perfect sense. In a community property state, you're both on the hook anyway if the loan goes into default, so you might as well get the FICO benefit from a joint application.

Cosigning technically is no different, but it generally implies one party who can't get the loan themselves promising to the cosigner, "I will make good on this loan. Really-really." However, reality dictates that it's probably a more sound approach to retort, "I'll give you $X to help with your downpayment." Probably will cost ya less in the long run.

[Joe77]

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LV wrote:
Howdy, I have been thinking about cosigning on a loan. I understand that if there are missed payments, my credit score will be hit and that both parties have liabilities for the loan. Does cosigning for a loan effect my credit score any more than if I were to take out the loan myself? In other words, does the other parties poor credit score reflect on my good credit score? Thanks

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Everything everyone has said is true, and there's one other thing:

The payment counts in your debt to income ratio.  I've done mortgages 7 years and on about 4 occasions, was unable to qualify my client for a loan, because of a car loan they cosigned for someone else counting towards their debt-to-income ratios!  They had 4 car loans on their credit and only 1 car of their own between the two of them!

If the person you cosign for pays BY CHECK you can often remove it from debt to income ratio, but if they pay cash or money order (which, I've found, most people with bad/too little credit tend to do) there is no way to prove that you yourself aren't actually making those payments, therefore, they will assume you are and act accordingly.  You'd need 6 months to a year's worth of cancelled checks from the other person's bank account (without your name on those checks) to prove you're not making those payments.