Having a co-signer may mean acquiring credit you wouldn't otherwise qualify for --- or causing damaging to your credit for years to come. Just having someone else on your loan doesn't damage your credit rating, but allowing someone to share an account is dangerous unless you have complete faith in the person to use the account responsibly.
Identification
Opening a joint account has no effect on your credit rating. An application for credit lowers your credit score a few points, but this happens even if you apply for a loan on your own. Having a co-signer may help your credit, because it means you have a higher chance of receiving approval for an account, probably at a lower rate than if you applied by yourself.
Danger
When you allow someone to co-sign on your account, you give them full access to it, which might lead to damage to your credit. If you open a credit card account with someone, for instance, and the co-signer maxes out the credit limit, your score may see a drop of up to 45 points and possibly more. Further damage occurs if you and the co-signer can't meet the monthly payment on the account.
Considerations
If you have a close relationship with your co-signer, you may damage that, too, should a dispute arise over the account, such as who owes the bill. Also, if you can't qualify for a loan on your own, you probably can't afford the loan. When you and the co-signer apply for future loans, the balance on the account increases both of your debt-to-income, or DTI, ratios. The higher the DTI, the greater of a risk you are to a lender.
Tip
Before co-signing a loan, explain the legal consequences of co-signing to the other party. You may craft a separate agreement between you and the co-signer or lender regarding payment on the account. For instance, you may limit your liability to the balance and not any fees and penalties. If the loan involves real property, you should have your name on the title.
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