Impact of co-signed Loans on Credit Report
There are several risks involved when co-signing loans especially if not both parties have good credit
reports. Co-signed loans with a co-loaner who has a bad credit report can create a bad image for the co-
loaner who has a good credit report. Loaners should completely understand the consequences of having
someone as a co-signer of their loan. The advantages are ambiguous and it can strain both parties’
Constructing a credit score with Co-Signed Loans
Why do some lenders reject good credit reports that are constructed through co-signing? Although,
each one of us wants to see some answers to this question, it is more important to ask why anyone
would want to choose this option.
Although it is tough to balance financial statuses with co-signing, improving credit scores with co-signed
loans can be of great help for borrowers who are not eligible for a loan or for borrowers who have bad
Borrowers who benefit from co-signing loans are those:
Individuals with poor or no credit scores. Young adults can be the simplest example.
People with a bad credit history and credit score who wish to rebuild their credit.
Individuals who have a high debt-to-income ratio.
Borrowers who wish to apply for a loan which is beyond their credit limit.
For these borrowers, lenders ask that another person should act as the co-signer, or guarantor, of the
loan. The guarantor guarantees that the primary borrower will be honest with the lender by making
timely repayments. Co-signers are held liable for debt if borrowers fail to repay the required payments
whatever reason that can be, such as unexpected unemployment, medical emergency expenses,
Dangers of Co-signed Loans
Borrowers with poor credit scores grow confident with their improving credit score over acquired
through co-signing. This motivates them to take a financial leap by applying for a mortgage or an auto
loan. However, one should put down this credit-building method as it leaves a negative influence on the
loan application results.
Lenders are stubborn to borrowers who have poor credit history. For instance, an auto loan, supported
by a co-signer does not give lenders the impression that the primary borrower is capable of repaying the
loan, alone. Thus, the chances of the primary borrower being approved of a new credit are slim.