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Does Being a Cosigner Affect Your Credit?

Published December 11, 2024

5 min read

Table of contents

Key points about: cosigning and your credit

Cosigning a loan could help friends and family qualify, even if they have poor credit.
Cosigners take responsibility for repaying a loan if the primary borrower fails to do so.
Alternatives to cosigning include adding an authorized user on your account and helping them apply for a secured or student credit card.

If a friend or family member with little credit history is having a hard time qualifying for a loan or line of credit, you can help by becoming their cosigner. However, cosigning is a major commitment. The behavior of the person you sign with could leave a lasting impact on your credit score and rattle your financial well-being. On the other hand, their responsible credit habits could help you both out. Before you cosign, read on to better understand your obligations and potential risks.

What is cosigning?

When you cosign a loan, you add your financial and credit information onto another person’s application to help them get approved or achieve better rates, the Consumer Financial Protection Bureau explains. When a person’s income or credit history makes it difficult to qualify for credit—like an auto loan, personal loan, or student loan—they may turn to a cosigner with a stronger financial background.

Cosigners reassure lenders that their loans will be repaid, making it easier to qualify. However, that leaves cosigners responsible for covering the balance if the main borrower fails to do so. If they miss a loan payment, the lender typically expects the cosigner to pay instead. If you don’t, both you and the primary borrower may bear the negative credit consequences.

Ways cosigning can affect your credit

The act of cosigning a loan doesn’t impact your credit score on its own. However, the primary account holder’s activity might affect your credit score.

Before you cosign a loan, consider how the main borrower manages debts. If they struggle to make payments or borrow more than they can handle, your credit may suffer. However, if they have positive credit habits, you may see little impact or even reap some benefits.

When does cosigning help your credit?

In the following situations, cosigning a loan could help build your credit score:

Lenders may prefer borrowers who have managed several different types of credit. If you cosign a form of credit you don’t already have, your credit mix may improve.

Whether you or the primary account holder cover the bill, consistent timely payments could build your credit score.

Fulfilling a loan’s terms by repaying it on time shows future lenders that they can trust both you and the primary account holder to responsibly manage debt.

When does cosigning hurt your credit?

In the following situations, cosigning a loan could hurt your credit score.

As a cosigner, you’re responsible for payments the primary account holder misses. If you both miss payments or consistently pay late, your credit score might suffer.

The account may go to collections if missed payments pile up, which could severely damage your credit.

Cosigning a loan could increase your credit utilization ratio (the amount you owe vs. your credit limit), hurting your credit score.

Main factors to consider before cosigning

Cosigning a loan is a major financial decision. Before you take this step, consider the following factors:

It doesn’t cost anything upfront to become a cosigner, however, if the primary borrower doesn’t repay the loan in full, you’ll become responsible for the remaining debt. Make sure you can afford the total loan amount or credit limit before you take on the responsibility. Otherwise, you may face not only damage to your credit score, but wage garnishment or legal issues, according to the CFPB.

Before you cosign a loan, it’s a good idea to make sure the primary borrower has a repayment plan. Consider how they’ll manage the debt if they lose their job or have to cover an emergency expense.

The Federal Trade Commission explains that some states offer specific protections for cosigners. You can contact the state attorney general for more information.

As a cosigner, you should never be in the dark about a loan’s status. Make sure you and the borrower check in about the loan regularly to discuss payments and any possible issues. You may also contact a lender directly to request monthly loan statements. That way, issues like missed payments won’t catch you by surprise.

Alternatives to being a cosigner

While cosigning could help a loved one qualify for a line of credit, it’s not always the best solution. For a credit card, you’d have to look for alternative options since most credit cards don’t allow cosigners. Fortunately, cosigning isn’t the only option.

Add someone as an authorized user

Some credit card issuers allow you to add an authorized user, like a child, family member, or friend, to your credit card account. Authorized users often receive their own credit card, which they can use to make purchases. The primary account holder is responsible for paying bills and managing the account. Both users' activity may appear on each credit report.

Typically, the primary account holder’s credit choices influence the authorized user’s credit score. That means making timely payments and keeping your credit utilization to a minimum could help you and the authorized user.

Authorized users don’t have to undergo a credit check, so this could be a helpful option for friends or family members who either don’t have a credit history or want to build their credit scores.

Consider secured or student credit cards

People with limited credit history may still qualify for their own credit cards. Some credit cards are geared toward people without credit history and people who want to rebuild their credit scores.

A secured credit card typically doesn’t require a credit score. Instead, cardmembers provide a deposit (within an approved credit limit) to secure the card. Each card’s credit limit is usually equal to the deposit amount. If cardmembers don’t repay the balance, the credit card issuers can use the deposit to cover it and close the account.

Did you know?

Students who want to start building their credit history may consider a student credit card. Student cards may not require a credit score to qualify. Some even give students an opportunity to earn rewards on their purchases as they develop positive credit habits.

Learn More

Cosigning could help a friend or family member get a loan they may not otherwise qualify for, but not without risks. Before you agree to cosign a loan, it’s important to understand the possible consequences and make sure the primary borrower has a plan. If cosigning seems like a risk you’d rather not take, alternatives may better fit your needs.

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