I cosigned a loan with my son. He is not making payments, and it will be turned over to a collection agency soon. Other than this circumstance I have good credit and make all payments on time. How does this one instance affect my credit rating if it's not my loan and I'm just the cosigner?
A cosigner guarantees the person for whom they are cosigning will repay the debt on-time and in-full. They are contractually obligated to repay the debt if the person they cosigned for fails to pay. As a cosigner, you are as responsible for the debt as the person for whom you cosigned.
Cosigning for an Account Will Impact Your Credit
Because you are equally responsible for the debt, it will appear on your credit history as well as your son's. A collection account in your credit history, whether as a cosigner or primary account holder, is extremely negative and will have serious implications when you apply for new credit.
Unfortunately, serious damage already has been done. Your only recourse is to pay the debt before it is charged off and sent to a collection agency. That will help minimize the damage. If you are not able to pay it off in full right away, contact the lender to see whether they will allow you to bring the account current and make the payments yourself going forward.
The late payments will remain on your credit history for seven years, but as time passes, they will hurt you less and less.
Consider the Risks Before Cosigning
Cosigning for someone is a decision that should be made very carefully. You and the person you are cosigning for need to understand very clearly the commitment you are making, and the responsibility they have to you as a result of that commitment. As you are discovering, when the person you cosign for fails to pay, they hurt both of you.
Thanks for asking.
Jennifer White, Consumer Education Specialist