Let’s say a close friend comes to you and asks for help securing a two-bedroom apartment. She is able to pay all the deposits and has no problem adhering to the terms of the lease, but she has bad credit and so the landlord probably won’t accept her as a renter. So she’s asking you to cosign the lease with her. However, you’re worried about what cosigning could do to your credit. What would you do?
Whether you are considering cosigning a lease for a friend or a family member, here are some things you should know about how cosigning might affect your credit score.
What does cosigning mean?
“Cosigning” is exactly what it sounds like: you are signing a lease alongside another person. Because a lease is a contract guaranteeing that the signees will uphold the terms of the lease, both the renter and you will be responsible for adhering to those terms. More specifically, if you are cosigning, you are guaranteeing that the renter will pay all bills due to the apartment. If they can’t, it falls on you to meet the financial terms of the lease.
Could cosigning a lease affect my credit score?
There are several ways cosigning could affect your credit score.
- After the lease is turned signed, the landlord will check your credit. As with all checks, this will show up in your credit history as an inquiry. That may lower your credit score a very small amount.
- Your credit score will be affected if your cosigner is unable to pay his or her bills and has to default on the lease. Landlords can report debt to a credit bureau, and that debt will appear on both your and the tenant’s credit report, lowering your score.
- Alternately, if the landlord chooses to use a collection agency, a collection account will appear on your report. This would lower your credit score as well.
How do you decide what to do?
The bottom line when it comes to cosigning: be sure you and your cosigner are on the same page about your payment responsibilities. Be clear about both parties’ needs and keep in touch about your financial situations, especially if they change.