So here’s a scenario. You’ve been working hard and you’re finally at a place where your credit is in great shape, you’ve got your finances in order and ready to take over the world. Then one day a relative or close friend hits you up and says they’re trying to buy a house but their credit is not that great and they ask you if you can cosign. What do you do?

The short answer… Don’t do it. The longer answer, you have a lot more to lose than to gain by cosigning on a loan. The only benefit in this arrangement is to the person you’re cosigning for. If they don”t pay on the loan and go into default, YOU are on the hook for the ENTIRE balance. You’re not just signing your name saying I’ll make sure this person will make the payments, you’re signing your name saying if they don’t make the payments then YOU will instead. Otherwise, the lender will come after you and the other person for payment. Another thing to consider, because your name is on the debt it will show up on your credit report as well and could affect your ability to get approved for your own loans. For example, let’s say you cosigned on a mortgage for your best friend a few months ago and now you want to buy a home of your own. When the bank is deciding should they offer you a loan they will include your best friend’s mortgage on your application. If you don’t have enough income to cover your best friend’s loan plus the loan you want, the bank might deny your application.

This might sound selfish but consider this, if things go left and the person you cosigned for doesn’t pay, then your credit could be devastated after you worked so hard to get it so high. This could also destroy your relationship with that person if  it goes bad.

If you do find yourself in a situation where you’re asked to cosign on a loan please take a good look at what I’ve said above and seriously consider it before agreeing to cosign.