Do you think a co-signers credit impact should be equal?

[Anonymous]

I've heard this topic debated before both in person and buried in threads on here so I thought it would be worth discussing.  This question applies to co-signers of a loan and I suppose could apply to an account AU as well although that's a bit different.

The current system shows equal levels of responsibility for the primary account holder on a loan and whoever cosigns it.  If the loan terms are met, both individuals reap equal rewards from the positive information applied to both of their credit reports.  Conversely, if the primary account holder falls short on their obligations and the account incurs late payments and/or more severe derogs, the cosigner experiences the same, equal credit report damage.

In your opinions, do you feel the way the system currently views primary account holders and cosigners as equals is favorable?  Does anyone feel cosigners should be held to a lesser responsibility level? 

First of all, I understand the responsibility of a cosigner to be sort of an insurance policy.  From the eyes of the bank, the cosigner is essentially saying "If the primary account holder is unable to keep up with their obligations, I'll take over and ensure you get paid."  Is that a fair assessment?  That said, using that verbage, it's pretty clear to me that the primary account holder still holds the primary level of responsibility as the cosigner is essentially there for backup.

I know I'm probably a bit biased on this topic as I've been burned not once but twice as the cosigner on an account.  I don't feel that the same weight should be given to both individuals on such accounts, whether it be negative OR positive.  If the primary account holder has more responsibility, I believe the account infomation should impact them more than the cosigner.  That's just my opinion.

I feel like the deck is sort of stacked against the cosigner, which I suppose is a good reason to always give the advice "never cosign anything!"

Quick story, I was the cosigner on a loan for someone several years back.  She was the primary account holder and made all of the payments.  We lived at different addresses, and the bills/statements could only go to one address on file.  Obviously, they went to her as she was paying them.  This is problem #1 as it already leaves the cosigner, me, in the dark about the account.  Yes I could log into the account on occasion online as I had her UN/PW and/or call on the phone to get account info... which I did off and on for years, but it's easy to forget with life and the fact that I actually wasn't making any payments.  Long story short, she stopped making payments completely while telling me she still was making them, and months and months went by without me checking up on her where I was racking up late payments on my credit reports.  This was of course long before I even knew what a FICO score was or ever looked at my own credit report.  When I found out what was going on, after trying to get her to catch up on the account which she wouldn't / couldn't do, I immediately paid it off with $6k of my own money.  Incidentally, the $6k that I paid was in great excess of the amount she had paid up until that point; as the cosigner I ended up paying back about 70% of the loan to her 30%. 

It just doesn't seem right to me after all the smoke clears and the dust settles that with respect to this account her and I both walk away with idential account info and subsqeuent credit score impact.  I know that's all part of the agreement of cosigning something, I get it, I just don't really think that I agree with the way the system is set up.  I'm not really sure what solutions there could be, if any.  I think this would make for an interesting discussion though.

[RobertEG]

The current system is to protect creditors, not co-signors.

There is both statutory and case law that defines current co-signor obligation.

From that perspecitive, if a party pledges their name to a grant of credit, they willingly assume responsibilty.

It would be a legal nightmare to impose different standards in court on iiability of a co-signor vs that of a principal.

The entire issue of less obligation would require changes in current law, which would then throw prior legal precedents out the window in dealing with subsequent civil proceedings. 

In my opinion, that would do more harm than good.

[Anonymous]

I understand that, and having a co-signer certainly does protect the creditor which is the purpose of it.  That doesn't change the fact to me that the primary account holder is still assuming the majority of the responsibility, but the accounts aren't reflected as such.

The same goes for AU's on CC's.  Some people add an AU for the son or daughter for example to help them with their AAoA and to get established... but they never give their son or daughter a physical card, just let that information report to their kids credit report in addition to theirs.  It doesn't make sense to me that the son or daughter in this example would equally benefit from the account; I feel like it should be maybe 50% or so.  Same thing if the parent screws up and stops making payments, I feel like it should impact them more than their kid who really had nothing to do with it.

Just odd the way the system works, I suppose from my perspective.

[RonM21]

OP I can see where you are coming from and how that could be.frustrating. But I must admit, I think I don't have much against the way it is currently set up. To me, if you co-sign, you have to be prepared to be all in. Really, you have to co-sign in the first place because the lender is saying the applicant is already too much of a risk.

Chances are, if they are a risk, then they can be just as risky to you. Essentially, that applicant would not be approved, but when you decide to cover them, that is like saying it's now on you.

I think what gets mixed up is the personal reasons for co-signing vs the true reality. A lot of co-signing happens because you want to help someone. While that is nice, it doesn't lighten the risk they truly are to you and the lender.

[Revelate]

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@Anonymous wrote:

I understand that, and having a co-signer certainly does protect the creditor which is the purpose of it.  That doesn't change the fact to me that the primary account holder is still assuming the majority of the responsibility, but the accounts aren't reflected as such.

The same goes for AU's on CC's.  Some people add an AU for the son or daughter for example to help them with their AAoA and to get established... but they never give their son or daughter a physical card, just let that information report to their kids credit report in addition to theirs.  It doesn't make sense to me that the son or daughter in this example would equally benefit from the account; I feel like it should be maybe 50% or so.  Same thing if the parent screws up and stops making payments, I feel like it should impact them more than their kid who really had nothing to do with it.

Just odd the way the system works, I suppose from my perspective.

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Not in the eyes of the creditor, by definition the cosigner is equally responsible and the lender simply doesn't care who pays just as long as one of them does.  Being a co-signer you have to to treat it as your own tradeline and if a payment gets missed, get on that quickly if you care about your own score.  Legal rights as a co-signer are weak too (I can't just go sell the damned car for example)... I try hard not to put in myself in a position to be held hostage by anyone, and frankly I'd view it like a loan to family: if you don't expect to get the money back and can afford it, sure go for it.

At least intellectually, think if I were in a position of needing to cosign for something I'd consider just buying it and renting the car or whatever to the person and then just giving them it when they've met the obligation.  Before we get on credit impact to the other individual, I'll go give the person the $500 for an Alliant or Penfed secured loan when it comes to credit building for someone I care enough about to cosign for: if that money doesn't ever come back, ain't no big thing, but if $20K goes walking away... sigh.

AU's do work the way you suggest since the kid in this example can just get the AU airstruck off his report.  Thanks for all the fish Dad!

[Anonymous]

I personally think it is appropriate.  I currently think about it like this; will I be willing to take over the payments?  If not, then no way I am going to co-sign.  You are both equally at risk, and you both equally gain the reward.  The only difference is usually 1 party is making the payments, and 1 party's past history is what supported the loan.  It all seems pretty equal to me. 

PS I have co-signed on a mortgage before, that went to forclosure....so I am very well versed at what happens when it goes south..lol.  I honestly didn't get mad.  I took it as a life lesson that I needed to learn the hard way, and since then I have been able to keep quite a few friends and family members from making my same mistake.  

[Anonymous]

As others have stated, you are incorrect saying that the primary account holder assumes the majority of the responsibility. As you said that you personally were burned by cosigning, you should be 100% aware of this. There is a reason lenders require cosigners. They believe there is a good chance they wont get their money otherwise. These people are a red flag to the lender and they should certainly be a red flag to anyone who is asked to cosign. So yes, I totally think the weight given to a cosigner is fair.

[takeshi74]

Whether it's favorable or not is irrelevant.  Both are responsible.  Things in the credit world aren't designed to favor the consumer.  It's all about assessing risk of default.  If a signer wants to leverage a cosigner then the cosigner needs to be willing to assume potential damage as well.  You can't have your cake and eat it too.  If the cosigner's damage is going to be reduced then the signer's benefit needs to be reduced.

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@Anonymous wrote:

I feel like the deck is sort of stacked against the cosigner, which I suppose is a good reason to always give the advice "never cosign anything!"

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All depends on who one is cosigning with.  That is precisely why we always advise extreme caution when cosigning.  If you're not willing to take the risk then don't cosign.

[Anonymous]

Good replies above everyone.  I can understand all of your perspectives.  I'm sure my emotional investment in the topic from getting burned is fueling my opinion, and perhaps over the years as the emotions get diluted I'll slowly start to share the majority opinion on this