Cosigning for a loan does not affect a credit score unless the other person defaults on the loan and the cosignor does not pay it back. When someone needs a cosignor, it is usually because the person does not have the credit score necessary to get the loan. This means either that the person has been irresponsible with credit in the recent past or that has little to no credit history. Either way, a cosignor is promising responsibility for the debt if the person defaults. If the item is a very high-value item, such as a new car or a house, the cosignor can fall into debt very quickly.

If the original borrower defaults, the lender looks to the cosignor to take over the debt. If the cosignor cannot afford it or does not continue paying the debt for any reason, then the lender will send it to collections just as if the debt was incurred by the cosignor. At that time, the collection agency begins collection activities that can include obtaining a judgement and putting the debt on the cosignor's credit report, which drastically reduces the cosignor's credit score and ability to obtain new credit.

If there is a charge-off, collection and judgement, then a cosignor might be looking at up to three new negative accounts on his or her credit report from one defaulted account. For these reasons, it is important to be careful about cosigning on a loan for someone else unless the cosignor knows that the borrower has the ability and willingness to pay the money back.

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