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How Cosigning Affects Your Credit

Dear Experian,

Is there a difference if a cosigner is first or second on a car loan? Would it negatively affect someone’s credit if they are first rather than second on a car loan?

– EKP

Dear EKP,

Whether you are the primary or secondary signer on the account, co-signing for a car loan means you are agreeing under a legal contract to be equally responsible for making sure the bill gets paid on time, and the account will appear on both your credit report and the credit report of anyone else listed on the loan.

How a Joint Car Loan Affects Your Credit History

Generally speaking, credit scoring models do not differentiate between the primary and secondary signers on an account. As long as the account is appearing on both individual’s credit reports, any late payments will negatively impact both the signer and the cosigner.

If all payments are made on time, the account will reflect positively for anyone listed on the account. Here are several things you will want to consider before making the decision to cosign a loan for someone else:

  • You are responsible for ensuring that payments are made on time, even if the bills don’t come to you. The lender isn’t responsible for informing you when the person who typically makes payments on the account misses a payment. It’s up to you to monitor the account.
  • Lenders will include the amount owed on the loan and the monthly payment amount when calculating your debt-to-income ratio for future credit applications. Although income is not part of a credit report, lenders will often ask you for this information as part of the application process. Even if you aren’t the one making payments on the account, lenders know that you are ultimately responsible if the other party stops paying.
  • If you cosign for a significant other and your relationship ends, your name stays on the account. Most lenders will not agree to remove your name from an account unless the other party can qualify to refinance the account in their name only. Even in the case of divorce, a divorce decree will not override the original contract with the lender.

If you do decide to cosign for someone, have a frank discussion with them beforehand. Be certain that they understand the risk you are assuming by agreeing to be responsible for the loan and how the account will affect both of you, good or bad.

Thanks for asking,

The “Ask Experian” Team

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