Should you be a co-signer on a loan?

Maybe you’ve been approached by a family member to co-sign on a loan. Should you do it? As general advice, the answer would be no—just don’t do it!

Here’s something I’ve said many times as I counsel consumers or speak to groups: Think of your credit profile as analogous to your fingerprint. It’s unique to you and should stay that way. That means you should avoid mixing other people’s credit habits/history with your own.

That’s good advice. But real life sometimes places its own demands on us. You may see a person in need and feel compelled to help. It may even be a beloved family member. What should you do then? And how can you avoid walking into a trap?
The answer—control.

Control as much as you can. Make sure you’d be able to pay off the obligation yourself if things went bad—or at least maintain the payments. That reduces the risk of harm to your credit. And of course, it could also avoid harm or strain to an important relationship.

If you’re the parent cosigning for your child living at home, that has some definite benefits. Remember, the billing statements will be coming to your address. So you’ll have a chance to inspect them and address any problems. Make sure to take advantage of that situation.

What if the other signer does not live in your home? You can still exercise control and prevent harm to your credit. Set up an online account and make sure you have the username and password. Then you can log in at your discretion and verify that the payments are on time.

The decision to become a cosigner shouldn’t be made lightly—even if it’s for your child, a relative, or a good friend. You should make sure the arrangement stays within certain specific parameters. I suggest having a written agreement between the parties, spelling out what-if scenarios. That way if something does go wrong, you’re both clear as to what should happen.

If you’re going to become a co-signer, go in with a clear understanding on all sides. It will help you avoid needless grief.