If I Cosign For a Car Does It Show Up On My Credit Report?

If you’ve cosigned on a car loan or can finance, you might be wondering whether the account will show up on your credit report and whether it affects co-signing affects your credit score? We will answer both of these questions in much detail below.

If I Cosign For a Car Does It Show Up On My Credit Report?

Cosigning for a car will cause an installment account to show up on your credit report and on the main borrower’s credit report. Additionally, a hard inquiry will be added to your credit report when the lender reviews your credit report, slightly lowering your credit score. The effect that co-signing for a car has on your credit score mainly depends on how the primary borrower manages the loan account. If the primary borrower makes all of his or her payments on time, this will boost your credit score. However, if the borrower fails to make a payment or the account is sent to collections, this could cause significant damage to your credit score. As such, you should only cosign for a car if you know that the primary borrower is responsible enough to make his or her car payments on time.

Late Payments

Cosigning for a car can show up on your credit report and hurt your credit score if the primary borrower is more than 30 days late for making the payment on the account. If the primary borrower is 30 days late, a 30-day payment notation will be added to your credit report, significantly lowering your credit score. Additionally, if the borrower continues to be late on the account, a 60-day late payment notation and a 90-day late payment notation will be added to your credit report, lowering your credit score.

Repossession

Additionally, if the primary borrower fails to make payments on the vehicle, the vehicle may be repossessed causing a repossession to show up on your credit report. A repossession can significantly lower your credit score, as well.

Collection Account

Moreover, if the vehicle is repossessed and sold, you may be liable for the difference between what the car sold for and what’s owed on the vehicle. If the outstanding balance is sold to a collection agency, a collection agency may add a collection account to both the primary account holder’s credit report and the cosigner’s credit report, lowering both of your credit scores.

So, at this point, it should be apparent that cosigning for a loan is a big responsibility. You should only cosign for a car if you know that the primary borrower is reasonably likely to make his or her payments on time.

CSP Pro Tip – If you cosign for a car, when a dealer submits a credit application to review your credit report, a hard inquiry is added to your credit report. A hard inquiry is not a derogatory mark, but it will cause a slight drop in your credit score (around 3 to 5 points). That said, hard inquiries only stay on your credit report for 2 years, after which they are automatically removed from your credit report. Experts agree that the impact a hard inquiry has on your credit score only lasts for 12 months.

Does Cosigning For a Car Help Your Credit Score?

Cosigning for a car can help your credit score and help you establish good credit so long as the primary borrower makes all of the payments on time. Missing a single payment on a car loan or car lease can cause significant damage to both the primary borrower’s and cosigner’s credit scores. Additionally, if you co-signed for a car, having a paid off car loan or car lease will build good credit as it shows future lenders and creditors that you’ve handled debt well in the past. Additionally, since co-signing for a car adds an installment account to your credit report, this improves your credit mix, having a good credit mix and raise your credit score because your credit mix accounts for 10% of your credit score.

Things to Consider Before Cosigning For a Car

Here are some things that you should consider before cosigning for a car:

1. Legal Liability – When you cosign a car loan, you are accepting complete legal liability for repaying the car loan in the event that the primary borrower does not repay the loan as agreed. If the primary borrower fails to repay the loan on time, late payment notations will be added to your credit report as a cosigner, lowering your credit score. Additionally, if the account is sold to collections, you will be liable for repaying collections from the outstanding amount that’s due. So, keep this in mind before co-signing any type of loan, not just car loans.

2. Good Credit – In order to cosign for a loan and help the primary borrower qualify for a car loan, you must have good credit in order to be approved for the car loan. If you do not have good credit, you are unlikely to help the primary borrower to approved for his or her car loan.

3. Ability to Obtain Financing – If you co-sign a car loan, you should consider the consequences it has on your ability to obtain financing in the future. This is so because the car loan is reported on your credit report as if you had borrowed the money, increasing your debt-to-income ratio (DTI). A high DTI can prevent you from qualify for loans in the future as lenders consider this factor before lending you money.

4. Relationship – Another thing that you should keep in mind that’s not related to your credit is your relationship with the borrower. Your relationship with the borrower could be strained if he or she fails to repay the car loan.

5. Divorce – Getting a divorce does not sever your liability for repaying the loan in the event that the borrower fails to repay the loan on time.

6. Negative Impact On Credit – If the borrower fails to repay the loan on time, bringing the account current will not erase the negative marks that are added to your credit report. Negative items often remain on your credit report for 7 years.

Should You Help Another Person by Cosigning for Auto Finance or Car Lease?

If you have a family member or trustworthy friend, and you’re reasonably certain that they can afford the car loan or auto finance, and you’re reasonably sure that they will repay the loan as agreed, then helping them is not a bad idea. Before becoming a cosigner, you should create a plan for repaying the debt before co-signing. We’ve provided you with the most important things that you should consider before becoming a co-signer. If it seems too risky for you, then avoid it. However, if you want to cosign, be sure you understand the legal responsibility for doing so.

Frequently Asked Questions (FAQs)

1. Who gets the credit on a co-signed loan?

If you cosign a loan, both the cosigner and borrower’s credit scores will be affected. If payments are made on time, both credit scores will improve. However, if payments are missed, both credit scores will suffer.

2. Will cosigning affect my credit?

Yes, cosigning will affect your credit. It will have a positive affect on your credit if the payments are made on time. However, if the borrower misses a payment, both credit scores will suffer.

3. Can you remove yourself as a cosigner?

This depends on the terms of your loan agreement. Some lenders have procedures in place that you must follow to have a cosigner removed. But, you cannot have yourself simply removed because you no longer want to be a cosigner.

4. Will my credit score go up if I become a cosigner?

Your credit score will go up if you become a cosigner and the borrower makes all payments on time. If the borrower misses a single payment, this could cause significant damage to your credit score.

5. Do late payments affect a cosigner?

Late payments typically affect a cosigner. This is so because you’re basically agreeing to be financially responsible for the loan in the event that the borrower fails to repay on time.