When You Co-sign, The Borrower Now Controls Your Credit History

When You Co-sign, The Borrower Now Controls Your Credit History

Published: April 5, 2016 Last updated: April 19, 2022 at 21:46 pm

co-sign loan

Co-signing Someone Else’s Mortgage Leaves You Vulnerable To Potential Credit Problems

I met a couple recently who want to refinance their house to pay off some debts. Their home is worth $900,000 and their current mortgage is $450,000, so with lots of equity to play with you would think this will be really easy. The debts total around $40,000.

After gathering all their personal information, we pulled their credit reports from Equifax to submit to the lender. Everything was fine except his credit score was only 542. (For mortgage financing, a score above 620 or so is desirable. Ideally your score is 700 or higher.)

I reviewed the contents of his credit report and found a $6,000 student line of credit with several recent late payments. In fact it is currently 60 days late. He shook his head ruefully and explained he had co-signed for his son a few years ago and his son was forgetful and often neglected to make regular payments.

Otherwise the credit report was fine. But with this glaring blemish on his credit report, no “A lender” will refinance their mortgage or give them a Home Equity Line of Credit to cover their own debts.

The Solution: A Private Second Mortgage

Their only chance now is to take out a private second mortgage; cover ALL the debts, and when their score increases sufficiently in six months or so, only then can we properly refinance their mortgage.

The silver lining here is we caught this now before things got even worse.

#Cosigning disasters happen much more than you might think. Most people do not understand when you co-sign a loan product (even a cell phone contract!) you are effectively handing over your credit history to the borrower. Click To Tweet

If you are sure you wish to co-sign for anyone, you need to think in advance:

  • Be sure the arrangement is such that you have complete access to the debt’s monthly statements. That way, you will know immediately if the arrangement is going off the rails.
  • Be sure you have the resources to step in and make payments if the borrower shows signs of not being able or willing to do so themselves. That way, you can at least protect you credit history.
  • If you cannot do both those things, you had better be completely sure the borrower will never mess up. Because you have given them far more than your scribbled signature – you have taken on full personal liability for the debt.

Do you have questions about co-signing? Ask Ross how he can help.

We have a FAQ page where we list many of the questions which come up as we help our clients understand their personal credit histories and their credit score. Real Canadians with real issues. Perhaps you will find your question there.

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​Ross Taylor
One of Toronto/GTA's Most Trusted and Knowledgable Mortgage Agents

Ross Taylor is recognized by his peers as one of Canada's pre-eminent difficult mortgage specialists. His ASKROSS blog and column ​ in Canadian Mortgage Trends are focused on the intersection between mortgage financing and personal credit.

With unique dual certification as a licensed credit counselor and mortgage agent, Ross's insights are valued by mortgage professionals and homebuyers alike.

If you have questions about anything financial or mortgage-related, please contact [email protected]. Ross answers everyone personally.

​For more information, visit About Ross Taylor.