debt

5 reasons you should never be a co-signer

It will negatively affect your credit
It will negatively affect your credit © Chatchawan/Shutterstock.com

It will negatively affect your credit

If the loan is paid off on time and in full, no problem, right?

Wrong.

"Co-signing can be the kiss of death for your credit report," says Michelle Black, co-owner of the Home Ownership Program for Everyone, or Hope, a credit education and restoration program based in Fort Mill, South Carolina.

Black says that even if the loan is paid on time, the potential new debt you have taken on will most likely drop your credit scores because 30 percent of your score is based on the amount of debt you carry. Co-signing also will increase your debt-to-income ratio, making it harder for you to qualify for loans you may need, such as for a mortgage or a new car, she says.

"Co-signing for someone else's loan is like playing Russian roulette with your credit scores," says Black. "It is dangerous and most certainly costs you in the long run when you are turned down for a loan you personally need or are forced to pay higher interest rates."

And that's the best-case scenario. The worst case is when your family member or friend defaults on the loan.

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