Can cosigning a mortgage affect credit score?

Quick insights

• A Cosigner can be added as a responsible party for a mortgage.
• The actual act of cosigning on a mortgage doesn’t have much of an impact on your credit score. The payment history that comes later, though, can affect your credit.
• If the person who is mainly responsible for the mortgage defaults on payments, your score may be affected. Are you thinking about cosigning a mortgage? Let’s investigate how the relationship between cosigning a mortgage and credit score may impact you.

What is a cosigner?

A cosigner can be defined as the responsible party for the mortgage if the primary account holder neglects to make their payments on the loan. This functions similarly to being a cosigner on different types of loans or accounts. That’s what you may be signing up for if you cosign a mortgage. Cosigning a mortgage can help a close friend or family member with a low credit score secure a mortgage. It’s a way to make a difference in a loved one’s life and give them a better chance at achieving a major life milestone.

How does cosigning a home loan work?

The process of cosigning works much like a loan application for yourself. That means you’ll need to provide identifying information like your government ID and proof of address, such as a utility bill. The lender will also need verification of your relationship with the primary party taking out the mortgage. Many mortgage lenders may require a familial relationship for a cosigner. They also often require the cosigner to have a minimum income or proof of available funds.

You can expect to also show financial records in order to become a mortgage cosigner. These records often consist of:

• Verified income: You may have to provide pay stubs, W2 forms or other documentation to prove your income. Cosigners may be required to have a minimum income.
• Assets and debt: Lenders often request bank statements, investment account information and retirement account balances.
• Credit check: The lender will typically perform a hard credit check, which may impact your credit score.

Mortgage lenders usually check credit scores as part of assessing loan eligibility, including the credit score of a cosigner. Your credit score is a numerical representation of your credit eligibility. The credit scoring companies FICO^® and VantageScore^® calculate this three-digit number based on your credit history, which is your past credit behavior like paying bills and taking out new credit cards. Cosigners may be required to have a minimum credit score.

How cosigning affects your credit

Your repayment habits after cosigning a loan may affect your credit. Here are two instances in which your credit may be at risk as a cosigner:

• Late payments may appear on your credit report and negatively affect your score.
• Foreclosure on the cosigned account can show up on your credit history and impact your credit score.

Cosigning a mortgage: risks and benefits

There may be risks and benefits involved in cosigning for a mortgage. These pros and cons are parallel to those you may encounter when opening a credit line for yourself. Let’s summarize and review these for ease of comparison. The risks may include the following:

• Your credit score might be affected if the mortgage holder misses payments.
• Removing your name from a loan you cosigned could present a challenge.
• You have no ownership rights to the property even if you pay the entire mortgage.

The benefits of being a cosigner may involve:

• It can add to your payment history and credit mix, which may help boost your credit score.
• You can help someone in a fundamental way and possibly help improve their credit as well.
• It might assist someone in reaching a major life milestone: homeownership.

In summary

When you’re thinking about cosigning a mortgage and credit score consequences, there are both risks and benefits to think about. Keep in mind that your credit score can serve as a measure of your creditworthiness. So, anything that may impact it is worth some thoughtful consideration at the very least. A credit check can be a good place to start when making decisions about your credit. Chase Credit Journey® offers a free credit score check to look at where you stand without impacting your score.