I recently chatted with a guy who wanted to buy a house and called about the financing. He was a nice guy, but it became pretty obvious as we talked that his "niceness" had created some serious financial headaches for him. At one time he had had really great credit, but he recently made a big mistake that completely messed it up.
What was his mistake? Well, unfortunately for him, he made the error of cosigning for somebody. And incredibly, this "somebody" wasn't his mom, son, or daughter, it was a coworker. Wow, really? Now, I'm not too excited about the idea of cosigning anyway, but I would absolutely never cosign for a coworker.
Unfortunately for my borrower, his coworker predictably stopped making payments and ended up giving the car back to the bank. Now the well-meaning man was stuck with a repossession on his credit, seriously damaged credit scores, and couldn't qualify to buy the home he wanted.
Putting Your Credit Into Somebody's Hands
Folks, when you cosign you're giving somebody else power over your good credit. If they fail to make payments on a debt you cosigned for, the bank has the right to pursue you for the money. If you end up with damaged credit, it may be tough to get a good loan (or get a loan at all) in the future.
I once talked with a dad who cosigned for his daughter and ended up with badly messed up credit when she stopped making her payments. The well-intentioned dad was stuck with a high interest mortgage that he'd had for years because he couldn't refinance. His daughter's failure to meet her obligations ended up costing him a lot of extra mortgage interest over a period of several years.
Even if the person you cosign for keeps up with payments just fine, it can still make it difficult for you to qualify for a loan. Mortgage underwriters will insist on including any cosigned payments in your debt-to-income ratio unless you can document with cancelled checks that the other individual has been making the payments for the last 12 months. If that's not possible and your debt-to-income ratio is too high to qualify, you won't be able to get the loan.
Think Carefully Before You Cosign
My recommendation is to think very carefully before putting your credit into somebody else's hands. Derogatory credit can remain and negatively impact your credit rating for a very long time and make it difficult to get a loan when you want one. And even if you can get a loan, you could end up with a higher rate that could cost you for many years to come.
What was his mistake? Well, unfortunately for him, he made the error of cosigning for somebody. And incredibly, this "somebody" wasn't his mom, son, or daughter, it was a coworker. Wow, really? Now, I'm not too excited about the idea of cosigning anyway, but I would absolutely never cosign for a coworker.
Unfortunately for my borrower, his coworker predictably stopped making payments and ended up giving the car back to the bank. Now the well-meaning man was stuck with a repossession on his credit, seriously damaged credit scores, and couldn't qualify to buy the home he wanted.
Putting Your Credit Into Somebody's Hands
Folks, when you cosign you're giving somebody else power over your good credit. If they fail to make payments on a debt you cosigned for, the bank has the right to pursue you for the money. If you end up with damaged credit, it may be tough to get a good loan (or get a loan at all) in the future.
I once talked with a dad who cosigned for his daughter and ended up with badly messed up credit when she stopped making her payments. The well-intentioned dad was stuck with a high interest mortgage that he'd had for years because he couldn't refinance. His daughter's failure to meet her obligations ended up costing him a lot of extra mortgage interest over a period of several years.
Even if the person you cosign for keeps up with payments just fine, it can still make it difficult for you to qualify for a loan. Mortgage underwriters will insist on including any cosigned payments in your debt-to-income ratio unless you can document with cancelled checks that the other individual has been making the payments for the last 12 months. If that's not possible and your debt-to-income ratio is too high to qualify, you won't be able to get the loan.
Think Carefully Before You Cosign
My recommendation is to think very carefully before putting your credit into somebody else's hands. Derogatory credit can remain and negatively impact your credit rating for a very long time and make it difficult to get a loan when you want one. And even if you can get a loan, you could end up with a higher rate that could cost you for many years to come.
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What is a great credit score when you're applying for a mortgage? Find out what is considered good credit here.
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