Does being a cosigner for an apartment affect your credit

Helping someone obtain an apartment by co-signing may seem like a good idea on the surface, but such generosity does come with certain risks. A co-signer is legally responsible for a debt if the main borrower is unable to pay it. Co-signing can affect your credit now and ultimately, may cost you money in the future.

Your Credit

Federal law requires creditors to obtain permission from you before they access your credit file. Once you sign a leasing agreement as a co-signer, the landlord will check your credit. This will be a hard inquiry, meaning it will result in the appearance of an inquiry on your credit report that is factored into your credit score. An inquiry may or may not lower your credit score a small amount. It depends upon how many other inquiries are on your report and the other data found in your credit file. Inquiries remain on your credit report for up to two years, but the FICO credit scoring model only considers inquiries from the previous 12 months when calculating your score.

Significance

By co-signing a lease, you agree to pay the rent and other expenses associated with the apartment rental if the lessee should default. This means the landlord can pursue uncollected monies from you if he cannot obtain payment from the renter. This can be especially costly if the tenant skips out on the lease altogether or causes damage to the rental property. You are then responsible for those bills.

Consequences

Landlords often report unpaid debt to a credit bureau. The debt will appear on the credit report of the tenant but it will also appear on the credit report of the co-signer. If the landlord places the debt with a collection agency, a collection account will also appear on the co-signer's credit report. This will negatively affect your credit and result in a lower credit score. Negative accounts from unpaid debt can remain on your report for up to seven years, even if you later pay them off.

Considerations

Only co-sign for an apartment if you have the financial ability to cover the debt yourself. The tenant may be able to afford the rent and expenses now but if that changes before the lease is up, you're on the hook for it. Depending upon the amount owed to the landlord, you may be sued for it. The landlord will receive a judgment against you and the tenant. A judgment will appear on your credit report as a public record and further damage your credit score. It will also give the landlord the right to pursue your assets to pay the debt.

References

Resources

Writer Bio

Mack Mitzsheva is a tax lawyer, personal finance expert and the author of the forthcoming ebook, "10 Best Places to Work Online." Mitzsheva is also a social media entrepreneur with five successful sites under her belt. Always innovative, Mitzsheva is currently developing a cutting-edge budgeting app for newlyweds.

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Co-signing a lease can be a generous way to help out a friend, relative or loved one. If your friend does not have good credit, or does not meet a landlord’s income requirement, you can secure the rental for her by guaranteeing she will fulfill the terms of the lease. But it’s a step that you should consider carefully.

Initial Reporting

The mere fact that you have co-signed a lease is very unlikely to be reported to the credit agencies, and so your credit will not be affected simply by the act of co-signing. If your friend or relative continues to pay the rent and abide by all the terms of the lease, your credit is safe. Your chances of obtaining a loan will be the same as they were before.

Problems

However, if your friend cannot meet a rental payment and becomes delinquent on the lease, you could well face problems. If unpaid rent is referred to a collections agency, this will end up on your friend’s credit report and yours as well, as co-signer. Such a delinquency will remain on your credit report for up to seven years, even if the amount is subsequently paid in full. If your friend is evicted, the court judgment will also appear on your report.

Loss of Control

When you co-sign a lease, you may well put yourself in a situation over which you have no control. While you may trust the person you co-signed for, it may be that he will rely on a roommate to help him pay the rent. If the roommate is unreliable, your credit may end up being wrecked by someone you’ve never even met.

Safeguard

Before you co-sign, you must ask yourself what you will do if your friend or relative ends up unable to meet her obligations. If you take the very serious step of co-signing, you should be prepared to take the financial hit if the rent needs to be paid. This may end up being the only way to safeguard your credit. You also need to talk this through seriously with your friend to establish how this might impact your relationship.

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