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Cosigning Loans... Page 2
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Don't expect that you'll be able to
tell the lender it isn't your account - legally it is your responsibility! Negative
information will remain on your report for up to seven years and can make it more
difficult and expensive to get loans, insurance and even some jobs.
Cosigning Trap #2
Cosigning Makes It More Difficult for You to Get Credit
If you apply for a credit card, mortgage or other loan, the lender will count the amount
of the cosigned debt as if it were your own. (You are legally responsible for it.) That
may make it more difficult for you to get the credit you want, since it may look like you
already have a lot of debt. Avoid cosigning if you are planning on getting a mortgage or
another important loan in the next couple of years.
Cosigning Trap #3:
You May Not Be Notified Until the Borrower Defaults
There's no obligation for lenders to notify the cosigner when the primary borrower falls
behind on the bills. One set of parents, for example, didn't find out that their son
wasn't making the payments on a car loan until the car was repossessed!
To protect yourself if you do cosign, ask the lender whether it can send you duplicate
statements, or if you can check payments by phone regularly. If the borrower does fall
behind, you may have to step in and make payments in the meantime, to protect your credit
rating. Keep careful records of how much you paid and how much the primary borrower pays
you, in case the situation deteriorates and you have to try to collect from the borrower.
Cosigning Trap #4:
You Get Stuck for More Than You Expected
If you cosign for a credit card or open line of credit, you may be agreeing to more than
you expected. After all, credit card companies will frequently increase credit lines
without even being asked. One mother cosigned a credit card for her daughter while she was
in college. The bills were always paid on time, and the mother eventually forgot about it.
Several years later, her daughter married and added her new husband to the account. He ran
up huge balances, didn't pay, then skipped out, leaving the daughter and mother holding
the bag.
You're best off not cosigning a credit card or open line of credit. If you do, however,
agree only if the lender agrees to freeze the credit line.
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