Make sure that you understand what co-signing involves:
- You are being asked to guarantee the debt. Think carefully before you do. If the primary borrower does not pay the debt, you will have to. Be sure you can afford to pay if you have to, and that you want to accept this responsibility.
- You may have to pay up to the full amount of the debt if the primary borrower does not pay. You may also have to pay late fees, legal, or collection cost, which increases this amount.
- The creditor can collect this debt from you without first trying to collect from the borrower. The creditor can use the same collection methods against you that can be used against the primary borrower, such as suing you, garnishing your wages, etc. if this debt is ever in default, that fact may become a part of your credit record.
If you do co-sign, keep in mind that:
- Even if you’re not asked to repay the debt, your liability for the loan may keep you from getting other credit because creditors will consider the co-signed loan as one of your obligations.
- Before you pledge property to secure the loan, such as your car, furniture, or real property, make sure you understand the consequences. If the borrower defaults, you could lose these items.
- Ask the lender to agree, in writing, to notify you if the borrower misses a payment. That will give you time to deal with the problem or make back payments without having to repay the entire amount immediately.
- Make sure you get copies of all important papers, such as the loan contract, the truth-in-Lending Disclosure Statement, and warranties- if you’re co-signing for a purchase.
- Stay in contact with the borrower to ensure that the loan is being repaid in full, on time, every time.
Apply only for the credit that you need or for one or two credit cards in order to establish a credit history and to demonstrate the responsible use of credit.
Remember that every time you fill out a credit application, an inquiry is made by the potential lender or creditor. Too many inquiries listed on your report tend to be a “red flag,” giving the impression that you are desperately seeking credit.
DO NOT apply for unnecessary credit. DO NOT accept every credit card solicitation.
Be especially wary of taking out credit cards that you do not plan to use just to get a small one-time discount.
