Refusing to Cosign on a Loan to Protect Credit

Dear Experian,

I am trying to get a student loan, but my parents refuse to cosign because they fear cosigning for my student loan will affect their credit score, thus lowering their chances of getting a mortgage. This is so important because this will be my final year of college. Is this true?


Dear YOD,

Unfortunately, you and your parents are in a difficult quandary. They are correct that cosigning the loan could affect their ability to qualify for a mortgage, especially if they are planning to purchase a house in the near future.

If they cosign for your student loan, they are agreeing to take full responsibility for the debt if you can't or don't make the required loan payments. Because they share full responsibility for the debt, the loan will appear on your father or mother's credit report, as well.

I assume only one of them will actually be a cosigner. Because everyone has their own credit report, the loan will only appear on the reports of those who have signed the loan documents.

There are a few things to consider, though, which might make them reconsider cosigning for you.

The first is that the loan almost certainly will appear on only one of your parents' credit reports. If both parents have strong credit histories, only one will have to be concerned about a change in their credit score. Because the mortgage lender will consider both of your parents' credit histories, the impact could be minimal.

The second important issue is when your parents plan to apply for the mortgage. If they don't plan to apply during the next several months, the loan may have minimal impact on the mortgage loan because the credit history will have had time to stabilize.

With mortgage lending in particular, stability is critical. It's not a good idea to take on a new debt just before or during the mortgage process. If they plan to apply in the distant future, six months to a year away, for example, cosigning may not have a substantial impact on the credit scores or the lending decision.

I suggest they consult with a mortgage lender and ask to be pre-qualified. These professionals deal with such situations every day and often can provide guidance on what might impact their rates based on their current credit position. You certainly don't want to interfere with their mortgage transaction. Even a minor difference in rates can make a huge difference in how much they pay over the course of the loan.

But, if they can get assurance of a good rate, you can remind them that a completed education will help you land a good job. That means there will be far less chance that you will need to move back home and live with them in their new house. That could be quite an incentive for many parents.

Thanks for asking.
- The "Ask Experian" team