Apartment complexes often require tenants to undergo a credit check before approving their rental applications. If a tenant does not meet the necessary credit requirements, he can still rent an apartment provided he has a co-signer with good credit. Give co-signing an apartment rental serious consideration before signing on the dotted line. If the tenant isnt responsible, acting as a co-signer on his housing application could place your good credit rating in jeopardy.
Credit Impact
Provided the tenant pays her rent on time and does not damage the apartment, your credit should remain unaffected by acting as a co-signer. This is because most apartment complexes do not report rent payments to the credit bureaus. The benefit of unreported rent is that, if the tenant misses a months rent but later catches up, your credit wont suffer from his mistake. The downside is that the tenants regular rent payments wont help build his credit history or boost yours.
Financial Risk
Your liability as a co-signer rests on the tenants behavior rather than your own. Thus, you remain at risk from the day you co-sign the rental application until the day the landlord returns the tenants security deposit after she moves out. If the tenant damages the apartment beyond what her security deposit will cover, incurs fines for violating the complexs rules or stops paying rent altogether, the apartment complex will hold you just as liable for payment as the wayward tenant.
Credit Damage
When you are left holding the bill for the tenants bad behavior, it isnt just your wallet that suffers your credit scores could suffer as well. While apartment complexes do not typically report rent and other expenses tenants incur to the credit bureaus, they will turn the tenants debt over to a collection agency if it remains unpaid.
Because you co-signed for the apartment and are equally responsible for paying any outstanding debt associated with that account, the collection agency reports the derogatory debt on your credit report as well as the tenants. A collection account is a serious derogatory entry on your credit record and will lower your credit score.
Considerations
If you sustain credit damage as a result of co-signing a rental application for a friend or family member, you can repair the damage over time with good behavior. Recent credit information factors more significantly into your score than older data. The result is that, as the collection account ages, it has less of a negative impact on your scores. After seven years, the collection account will vanish from your credit history altogether.
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