If you co-signed a lease, or you're thinking about it, you should be aware of the potential impact it can have on your credit. The act of co-signing a lease in itself does not go against your credit. However, if the tenant for whom you've co-signed ends up owing the landlord money, you can ultimately be held liable.
Rent Owed or Damages
If a tenant falls behind on rent, landlords have the right to begin the eviction process. If a tenant is evicted and owes back-rent, the landlord can file a claim -- usually in small claims court -- to recover rent owed. Often, both the tenant and the co-signer will be named as parties to the civil suit. Additionally, if a tenant caused damage to the apartment beyond normal wear and tear, a landlord can sue a tenant for the cost of damages.
Collection and Civil Judgment
Once a landlord receives a civil judgment against the former tenant and co-signer, the tenant's wages and/or bank account can be garnished. The landlord also has the right to seek out the co-signer and collect money owed from the co-signer's wages or bank account. In lieu of obtaining a civil judgment, a landlord can turn the matter over to a collection agency.
Impact on Credit
A co-signer's credit is negatively affected if the tenant defaults on the lease and the landlord obtains a civil judgment or turns to a collection agency. Whenever debt is turned over to a collection agency or a civil judgment for money is obtained, it is reported to credit reporting agencies and credit scores are negatively impacted. For the co-signer, this can cause future difficulty obtaining loans or lines of credit.
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