People who can’t qualify for a loan, credit card or rental housing on their own are often told the same thing: Get a co-signer.
It sounds like such a easy solution, but there’s nothing simple about tying your credit rating to someone else’s payment habits or being on the hook for a loan someone else is using. Co-signing a loan can be the right choice, but it’s a risky one.
One of our readers, who commented on our blog under the screen name CryscAz, is in a complicated situation after getting a student loan with a co-signer.
“I had a student loan for about $12,000. My boyfriend at the time was a co-signer on the loan and when we broke up I moved away. Recently we got in contact after all of these years and he is upset that he paid the loan for my student debt. He is now threatening to sue me for the loan that he repaid. Can this be possible?” —CryscAz
It depends on what exactly the agreement between the couple was, but the short answer is “Probably not,” wrote Persis Yu, an attorney at the National Consumer Law Center, in an email. Yu said the reader would be best served by asking a family law attorney to review the specifics of the case.
“It would depend on what state they are in and what agreement they made when he agreed to co-sign the loan and/or made the payments,” Yu wrote. For example, if when the boyfriend agreed to co-sign the loan, the couple agreed the student would be responsible for payments and would have to repay the boyfriend for any payments he made, then he “could probably prevail in a suit for those payment[s],” Yu said.
Yu went on to say that it also depends how the couple was handling finances before the breakup, like if they had shared household expenses and if the student loan was included in them.
“This is like any other expense one partner pays for the other prior to a breakup (Hence the family law lawyer…),” Yu wrote.
Co-signing a loan means taking on responsibility for that loan, regardless of how your relationship to the other borrower may change. That’s part of what makes them so risky. Before co-signing a loan, you need to consider potentially negative outcomes (that the other person won’t pay the loan) and how you might suffer because of it (you’ll have to make the payments, or the loan will become delinquent and damage your credit).
Generally, you probably don’t want to co-sign a loan if you’re not prepared to be fully responsible for repaying it. If you do decide to co-sign a loan, you may want to clarify the arrangement with the other borrower in writing and maintain clear communication with that person throughout the life of the loan. It’s also a good idea to track how that loan affects your credit standing, which you can do by getting two free credit scores each month on Credit.com.
If your credit has taken a hit because of a co-signing mis-step, you may be able to improve your score by paying down high credit card balances, disputing errors on your credit report and limiting inquiries while your credit rebounds.
If you have questions about co-signing a loan or other credit matters, you can share them in the comments.
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