Do you ever wonder if cosigning is bad or good for your credit score? It appears that the cosigning for a credit card may have good or bad impact on your credit score. Here are some important consequences of cosigning for credit cards.
- If you cosign in a credit card application to help somebody, you are making a commitment to the card provider that you will pay if the main card holder does not pay.
- Your credit line will increase. If the card holder uses most of the available credit, the loan to credit ratio will go up. This will negatively affect your credit score.
- If the card holder is delinquent in payment, it will negatively impact your credit score.
- If the card holder stops payment on the credit card loan, you will be responsible to pay the loan. If the loan is not paid, your credit score will go down.
- There is a situation when your credit score may go up because of cosigning. Suppose, you cosign for a very responsible person and this person is approved for a high credit line. If this person utilizes less than one third of available credit and pays off credit card bills on time, your loan to credit ratio will go down. This will improve your credit score.
You must be wondering what you can do when a close relative asks you to cosign. Here are some suggestions you can consider before cosigning:
- If you are unsure about the financial wellbeing of the person you are trying to help, you are taking a risk. Ask yourself if you will be able to monitor the use of the credit card, and make payment in case your relative needs help or cannot pay. If the answer is yes, you may cosign.
- If you are cosigning for a financially sound and very responsible person, your risk may be low. In this case, cosign and ask for a copy of the credit card with your name so that you can monitor the activities on the card. Be sure to monitor the use of the card and take appropriate action before it is too late.
As you can see cosigning comes with some responsibilities on your part. If you can perform the responsibilities and take the assumed risk, you may cosign for your friend or relative, otherwise, staying away from cosigning will be wise.