How will co-signing impact my credit?

[Anonymous]

My fiancee and I are getting a new home next month. Up until now it was only going to be her on the loan, but she just floated the idea of me co-signing. I'm worried that it will ruin my credit score though. My income is in the mid 100's and the mortgate is close to a million. If my understanding is right, co-signing looks the same as being on the loan by yourself. And who would loan someone money with that kind of debt to income ratio? Right now we both have credit scores in the mid-upper 700's and I'm not sure how this will change them. But it would be nice if at least one of us still had a good enough score to get a car loan or handle other things that may come up in the future.

So my question is, would it look as terrible as I think it would on my credit report if I co-sign? Or would banks see that it was a co-sign and consider it differently?

[Anonymous]

You are right that the loan will appear on your credit report and won't look any different than if the loan was solely in your name.

FICO does not consider income in its score, so the fact that you might then have a high DTI (a million dollar mortgage) will not affect your score, which less ruin it.

But certainly future prospective lenders will consider your DTI in addition to your FICO score, so you are right to wish to consider what effect that might have on a lender's evaluation.  You might want to chat with a loan officer at three different insitutions and ask them what they think.

[Anonymous]

Ahh, Thank you for clearing that up! Do you know by chance if they consider DTI for car leases, credit cards, etc? Or only bank loans? It sounds like it may help my credit score in that case, right now all of my credit is revolving.

[Anonymous]

I think CC issuers, auto lenders and leasers, etc. all consider your income and the dollar value of your existing debt, whether they call that DTI or not.

We do not have a lot of test data on what happens when a person goes from no loans of any kind to one open loan on which he owes almost the entire amount.

Can you clarify whether you have any closed loans on your report?  If not, you will likely get some scoring benefit (though it would be small and I can't be sure that it would be a net positive).

[Anonymous]

PS.  If you opt not to be a co-signer on the mortgage, we can suggest a technique that will get you the "credit mix" benefit of a loan.  The technique will involve no increase to your DTI and will get you about 30-35 extra points on your FICO 8 score.  The technique will not work if you have another open loan on your reports.

[Miner]

The one major downside to co-signing on a loan with someone, is if the loan experiences late payments or is defaulted, then it looks very bad on your credit since you get the full impact of the loan (good or bad).  Usually why I won't co-sign with anyone who isn't wearing a wedding ring which imposes certain legal implications anyway.  I just bring this up as I know several people who co-signed on car loans and regretted it later when the relationship went sour and their former SO defaulted on the loan or the other person was just irresponsible and didn't tell them there was problem making payments until it was too late.  The fact that your girlfriend seems fine qualifying on the loan by herself (or can she?) suggests it may not come to that.  But if you do co-sign, you still need to know how the home and the loan would be handled if the relationship ends before you sign anything.

[Save-n-Invest]

Will you be on the deed as well as tht mortgage?

[Anonymous]

Hmm, if they consider debt to income only by what my current monthly payment for rent/mortgate is, then it wont change. Our current apartment lease is about the same as the mortgage payment and I've had no issue putting that down on credit card apps.

I have a few that have been closed for years, the most recent may be 5 years ago. I actually just got a TD Bank credit card the other day and it popped up on my credit report this morning as an installment loan!? But the credit simulator showed an 8 point boost to my Experian score. Not sure if that will actually translate to anything with the real score.

I would be on the deed as well. I understand worrying about having someone else make the payments on time, but she takes paying bills on time extremely seriously. Much more than me or anyone else I've ever met.

She has already been approved for the loan by herself. We are going to check today what it would take to get me on it as well. It was a real pain getting all the paperwork together for her, so that may be the deal breaker for adding me. They wanted proof of payment for every month of our apartment lease (the complex wouldn't provide it so we had to with bank statements). They were asking why she had payments going to chase, apparently they weren't showing up as credit card payments and they didn't know what they were so we had to provide proof it was a credit card payment, etc. 

[Anonymous]

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@Anonymous wrote:

She has already been approved for the loan by herself. We are going to check today what it would take to get me on it as well. It was a real pain getting all the paperwork together for her, so that may be the deal breaker for adding me.

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Can you help us understand better why you (or she) wants you on the mortgage loan?  She's already been approved.  She's going to get the loan.  It's unclear what advantage there could be at this point.

If the imagined advantage is because then you will have an open loan on your report (which you do not now) that's not a good reason.  We can recommend a much better way to get that Credit Mix advantage for your FICO score -- and the solution we would recommend would get you a big scoring boost as well which the mortgage will not do.  (The mortgage may cause a slight score drop.)

[Anonymous]

I was looking to do it so that we would be sharing equity in the house as we are sharing the payment. Also to increase my credit score by having more payments/a better credit mix. What would be a better solution for the credit mix?