In this Money Matters report, Time Warner Cable News’ Tara Lynn Wagner explains why you should think carefully before you agree to co-sign someone's loan or credit card.
Ever been asked to co-sign a loan? If so, you will want to think long and hard because Matt Schulz of CreditCards.com says when you co-sign, you are assuming total responsibility.
"If the person you co-signed for makes a mistake, it reflects on your credit as if you were the only person on the account,” Schulz says.
A recent study they commissioned found 38 percent of co-signers said they were stuck paying some or the entire bill because the primary borrower failed to hold up their end of the agreement.
Co-signing itself isn't terribly common. Only 1 in 6 adults in the US have done it - most of them parents co-signing on behalf of their child.
"Maybe a kid first out of college getting their first car needs a little leg up from mom and dad so mom and dad help them out,” Schulz says.
While there are times when co-signing is an appropriate strategy, there are definitely down sides to consider. For one thing, it can negatively affect your credit.
"So if the person that you co-signed with is a late with a payment, it can knock your credit down,” Schulz says. “Also, if you co-sign for someone with a credit card, any balance that they accrue goes onto your credit score as well."
In addition, it is not just your wallet that can get hurt. 1 in 4 co-signers said the situation also took a toll on their relationship with the borrower.
If you are considering this arrangement, Schulz says talk it over thoroughly with the borrower and the lender so everyone understands what their responsibilities are.
"Know your co-signer very, very well and be sure that you have as much access to that account as you possibly can - so in other words, trust but verify,” he says.