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When you cosign on a lease, you're making a legal promise to uphold the terms of the lease and to pay rent if the lessee does not. As a cosigner, your credit could be affected whether or not the person you're cosigning with pays their rent.
This uncertainty makes cosigning for an apartment risky. Before you agree to the lessee's request, understand the risks and how to mitigate them.
How Cosigning for an Apartment Affects Your Credit
Cosigning for an apartment may have no impact on your credit at all. If the landlord doesn't check your credit report when you apply, the lessee pays their rent on time and the landlord doesn't report rent payment to the credit bureaus, you're not likely to see any changes to your report.
However, that's just one possible scenario. There are also situations in which cosigning a lease could hurt your credit, and a couple in which it could help.
How Cosigning Could Hurt Your Credit
Reported late rent payments and defaulted leases are among the risks cosigners open themselves up to:
- The landlord could report late payments. Some landlords report monthly rental payments to the credit bureaus, which means your payment history could take a hit if the lessee pays rent late. This could lower your credit score and make you a less attractive borrower to lenders.
- The debt could go to collections. If a landlord is unsuccessful in collecting rent and enlists the help of a collection agency, the collection account can show up on your credit report and stay there for up to seven years after the account first became delinquent.
- An inquiry could appear on your report. It's standard for a landlord to check your credit when you cosign for an apartment, which may appear as a hard or soft inquiry on your credit report. A hard inquiry could lower your credit score by a few points for up to 12 months.
How Cosigning Could Help Your Credit
While most landlords don't automatically report rent payments to credit bureaus, there are a couple of ways to add rent payments to your credit score:
- Ask the landlord to report rent payment. Landlords can report payment history to Experian's RentBureau. The payments should show on your credit report as well as the lessee's, potentially building positive credit history for you both as long as all payments are made on time.
- Try a service to add your rent to your credit report. Rent payment platforms like ClearNow, eRentPayment, PayYourRent, RentTrack and Zego Pay allow you to pay rent electronically while building credit. Most platforms require that the landlord agrees to participate.
What to Consider Before Cosigning
Don't take the decision to cosign lightly. Before you sign on the dotted line, think carefully about the following:
- How could cosigning impact your relationship? If the lessee mismanages the lease, the potential financial and credit hit could put a strain on your relationship.
- What about roommates? You're not just cosigning for the lessee, but also for any co-tenants. If you don't know and trust their roommates, you may not want to bet your credit on their reliability.
- Once you cosign, changing your mind isn't an option. Cosigning on a lease is the same thing as signing a lease—typically, you're on it until the lease expires.
- Can you afford the rent? Cosigning is a promise to pay the rent if the lessee does not. To figure out how much you could be on the line for if they default, multiply the monthly rent by the duration of the lease. If you had to pay this number, how would it affect you financially?
- You'll generally need good credit. Your relative or friend may be asking you to cosign because their credit score doesn't quite qualify them. Does yours? Find out what score the landlord requires and then check your credit score for free through Experian to see.
- Your debt-to-income ratio may increase. Tread carefully if you plan to apply for a major loan such as a mortgage in the next 12 months. Lenders may count the rents you've cosigned for as a monthly debt, which could disqualify you from a mortgage, require you to put more down or raise your interest rate.
Weigh Your Options and Proceed With Caution
Cosigning on a lease carries one definite benefit: You're helping someone you care about qualify for housing. That said, you must weigh your personal stakes against the risks and responsibilities of cosigning to make the best decision for you.
Apart from cosigning, there are other ways you can help your relative or friend build credit and succeed financially. Support them in improving their creditworthiness by pointing them toward resources like Experian Boost®ø, a tool that can help them instantly raise their FICO® Score☉ by getting credit for eligible streaming service, cellphone and utility bills.