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The Downside of Cosigning

By Janet Lacey
Published: Monday, February 15th, 2010

There are a lot of things that people can share to make their burdens easier to bear, one of these things is cosigning for a financial agreement. Financial agreement varies from simple personal loans, long term business loans, payment installments and other agreements that require monetary compensation from one party. Cosigning in these financial agreements in its own appeal may sound right and even enticing.

Individuals who have chosen to enter in to such cosigning agreements would most probably end up losing more rather than gaining from the agreement. As a result, the credit scores and reports of those individuals who entered in cosigning deals will have to bear the same effects. This means that the individual who just signed the consigning agreement most probably as a favor will end up unnecessarily risking his or her own credit worthiness ratings.

In cosigning the co-signee is allowing the co-signer to access his or her credit worthiness ratings in availing financial services. People who usually use this strategy most probably have low credit worthiness ratings. They share their credit worthiness ratings to those who have high ones to be able to avail loans, installment plans and even card accounts.

The credit reports and scores of the two cosigning parties in a cosigning agreement are tied into one legal agreement. The two cosigning parties will bear equal legal and financial burdens during the cosigning period which means that the entire debt belongs to the co-signee as much as it belongs to the co-signer. The joint responsibility feature of cosigning is the same reason why it is generally unadvised to those who have good credit scores and reports.

There are two worst possible situations that a co-signee can find himself or herself into. First, is when the co-signor makes late payments and partial payments. The second worst situation is when the co-signor does not pay at all. The co-signee as said before is legally and financially burden as much as the co-signor is.

If the co-signor makes late payments, it will directly affect the payment history record of the co-signee. The late payment of the co-signor will lower the credit score of the co-signee as much as it did to the co-signor. If the co-signor does not pay at all, the co-signee is equally burdened to pay off the debt of the co-signor. If the co-signee will refuse to pay the debt just as the co-signor did, he or she will be subject to legal suits and to the lowering of his or her credit worthiness ratings.

There are more reliable alternatives in artificially boosting the credit worthiness ratings of individuals. Cosigning for a financial agreement is not the only way for an individual to be seen by creditors as credit worthy. Secured cards are good venues to increase credit score and make credit reports better because this type of credit card is good for building credit and payment history. Refusing a cosigning deal will most probably bring more good to both supposed co-signor and co-signee. Piling up debts can easily happen if the co-signee approved a cosigning deal when the co-signor is financially unable to pay for his or her debts.

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