I have co-signed for loans and credit before and it can be very risky. When you co-sign, you are equally responsible for the debt. Typically a person needs a co-signer if they have poor credit, insufficient income, or they don’t meet the employment length requirements. So basically, the creditor views this person as too risky and requires a co-signer. In my opinion, you should never co-sign for anyone unless you have the ability to pay off the debt in the event the other person can’t. Keep in mind, a person can have good intentions of paying off the debt, but illness, job loss, or any other unfortunate life circumstance can prevent this from happening.
I co-signed on a car loan for a friend and it was a bad experience. She desperately needed a car because the one she had was old and had major mechanical problems. I felt sorry for her because she had nobody else that could help her. It was a six year loan and she lost her job around three years into it. She was out of work about three months and I was able to pay the payments during that period. The new job she started did not pay quite as well so she continued to struggle to make the payments. I was very frustrated because this put pressure on me to step in and help out. Eventually, the car got repossessed because neither of us had the money to make the payments. This damaged my credit and our friendship. I have never co-signed again for anyone after this experience.
Once you co-sign with someone this will appear on your credit report. This could negatively affect your debt to income ratio, which could prevent future credit approvals. Credit worthiness can affect many areas in our lives beyond applications for credit. I work on a job that requires a high level security clearance and they take your credit into consideration to maintain your clearance. I have been questioned before by them for having a debt to income ratio that was too high. This was during the time that I had co-signed for someone and did not realize it would affect my credit.
As I stated earlier, try to avoid co-signing for anyone. If you do have to co-sign, carefully consider your financial situation as well as the individual you will be signing with. If it is a friend or family member, think about how it will affect your relationship if they can’t repay the debt. Stay in contact with the individual and debtor to ensure the debt is being paid on time. Check your credit report regularly to detect any issues with the debt. Maintain enough money in savings at all times to pay the debt in case the other person can’t make the payments.