What Cosigning a Lease Can Do to Your Credit

Your friend found the perfect apartment, but the landlord wants a cosigner, and they’ve asked you. As long as rent gets paid, cosigning usually won’t put anything on your credit report.

The risk shows up if it doesn’t: You’re responsible for what the lease covers, and an unpaid balance sent to collections can land on your report as well as theirs.

What you’re responsible for as a cosigner

Cosigning for an apartment can affect your credit in several ways. The most serious negative impacts tend to happen when the tenant (the person who will be living at the apartment) misses payments or their account goes into collections.

Before you sign, read the guaranty for what it covers: rent only, or also damages, fees, and renewals.

Imagine you cosign a lease for your friend, and they make all rent payments on time. However, shortly after they move out, the landlord asks you for $4,000 in property damage that your friend refused to pay.

If you can’t or don’t pay, you might see that amount show up in collections on your credit report.

Read more >> Renting an apartment with bad credit

‍Cosigner or guarantor? Many leases use the word “guarantor.” Whichever word yours uses, the document you sign, not the title, decides what you owe and for how long.

When cosigning a lease affects your credit

Cosigning doesn’t automatically put anything on your credit report. Most landlords don’t report rent to the credit bureaus each month, so if rent gets paid on time, there may be nothing to see. If your landlord does report rent, those on-time payments could even help.

The risk comes from what you signed. You’re legally responsible for what the lease covers, so if rent, fees, or damages go unpaid, the effects can reach your credit in a few ways.

Hard inquiries

Compared with the other risks on this list, this one is minor. A landlord will usually check your credit before approving you as a cosigner. Many rental checks are soft inquiries, which don’t affect your score, but some are hard. Ask the landlord which kind they run before you authorize it.

If it’s a hard inquiry, it usually takes fewer than five points off your FICO Score, according to Experian, and the effect lasts up to a year. Several hard inquiries close together can add up, because lenders may read them as a sign you’re taking on new debt.

Late or missed rent payments

You and the tenant might agree that they’ll make every payment. But the lease or guaranty you signed makes you legally responsible too, so what happens to their rent can happen to your credit.

Most landlords don’t report rent to the credit bureaus each month. If yours does, a late payment can show up on your report as well as the tenant’s. More often, unpaid rent reaches your report another way: the landlord sends it to collections.

Either way, the stakes are real. Payment history is the biggest factor in your FICO Score, at 35%, and late payments can stay on your credit report for up to seven years. To catch a problem early, ask the landlord in writing to tell you if a payment is late. You can also check your credit reports for free each week at AnnualCreditReport.com.

‍Is the rent being reported? Most landlords don’t report rent, so the tenant’s on-time payments may not show up anywhere. If the person living there signs up for Kikoff’s Rent Reporting, those payments are reported to Equifax and TransUnion, building a record in their own name. That history could help them qualify for their next apartment without needing a cosigner. Rent reporting is included in Kikoff plans, starting at $5 a month.

Collections from unpaid rent or broken leases

When an account goes to collections, it’s often sent to a third-party debt collector. Having even one account in collections can cause serious credit damage.

The negative impact of a collection account goes beyond credit damage, though. Debt collectors may aggressively pursue you for the debt, and if neither you nor the tenant pays, the collector could file a debt lawsuit against you. If they win, they could gain the right to garnish your wages, put a lien on your property, or take money out of your bank account.

If you’re served with a lawsuit, don’t ignore it. Missing your court date can lead to a default judgment, which is what opens the door to garnishment or a levy. How much of your wages or bank account a creditor can reach depends on your state. A local legal aid office can help for free if you qualify, and a licensed attorney can tell you how the rules apply where you live.

If a collection on your report has the wrong amount or isn’t yours, you can dispute it with the credit bureau for free. Kikoff’s AI Credit Disputes can help you draft the dispute. Disputes address inaccurate information only, so an accurate collection for a debt you owe will stay on your report.

‍What if it’s already on your report? Check your reports for free each week at AnnualCreditReport.com. If a collection is wrong, you can dispute it with the bureau for free. If it’s accurate and you’re struggling to pay, a nonprofit credit counselor can help you weigh your options. The National Foundation for Credit Counseling can connect you to free or low-cost counseling at 800-388-2227.

Higher debt-to-income ratio

Your debt-to-income ratio (DTI) compares your total monthly debt payments to income. If you’re planning to apply for a mortgage, tell your loan officer about the lease up front. Fannie Mae’s guidelines let a lender leave a debt out of your DTI when you’re obligated on it but someone else pays it, as long as the person paying can show 12 months of on-time payments with canceled checks or bank statements. If your friend pays the rent, ask them to keep those records.

Read more >> What is a good debt-to-income ratio?

What to ask before you cosign

Bottom line

Cosigning a lease usually stays off your credit report as long as the bills get paid. The catch is that your credit can depend on someone else’s payments. What you control is the history in your own name. Kikoff’s Credit Account reports your on-time payments to Equifax, Experian, and TransUnion, with no credit check to sign up. Plans start at $5 a month.