A credit score, or FICO score, is a number that signifies the risk of lending to a particular borrower. Your credit score can affect how easily you can access credit and the interest rates you are charged on debt. When you co-sign a mortgage, you agree to pay for the debt if the primary borrower does not pay. Co-signing is likely to damage your credit score.
Outstanding Debt
The amount of debt you have versus your total amount of credit is one of the main factors that determines your credit score. The more debt you have, the lower your credit score will tend to be. Co-signing for a mortgage essentially adds the full amount of the mortgage to your outstanding debt. According to MSN, "Even if the loan is repaid on time each month, another lender may consider the amount of debt that you co-signed when determining if you already have too much credit." This can hurt your credit score.
Payment History
Your payment history on debts is the single most important part of your credit score. If you've never missed a payment for a debt in your life, your credit score will tend to be high, while missed payments can significantly reduce your credit score. The reason lenders require co-signers is that borrowers with poor credit are very likely to fail to make payments. If the person you co-sign for happens to miss a payment, you are liable for the missed payment, even if you didn't know she failed to make the payment. It can be difficult to make mortgage payments for someone else in addition to your own debts. Co-singing increases the chances of missed payments.
Potential
In the event that the primary borrower cannot pay a co-signed mortgage, lenders may go after the co-signer rather than the primary borrower to collect the debt. According to MSN, "the bank can do more than ruin your credit rating: it can sue you and get a judgment against you for the amount of the loan plus interest." The bank may even be able to charge its own legal fees to you as it attempts to collect.
Considerations
In a best-case scenario, the person you co-sign for will pay back the mortgage on time each month for the life of the mortgage. Even in this case, co-signing will likely reduce your credit score due to the increase in outstanding debt. The Federal Trade Commission warns that co-signers often end up paying. Financial issues like co-signing can harm personal relationships in addition to credit scores.
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