Survey Reveals That 40% Were Co-Signers

In previous blogs, I have discussed the process and downsides of co-signing for loans.  It’s one of the most dangerous financial moves you can make.  Experian Consumer Direct, a division of Experian, one of the three major credit reporting agencies, conducted a consumer survey on co-signing for credit cards and loans.   I was amazed at the percentage who’ve co-signed for loans, and are now at risk.

First what is a co-signer?  A co-signer guarantees the payment of the credit card or loan debt, if the primary borrower responsible for paying does not.  In addition, the account information and payment history is reported on the credit reports of both the primary borrower and the co-signer.

Survey Highlights

Forty percent of the responders had co-signed for a loan or line of credit for someone.   Almost 20 percent of the 18 to 24 year old age group had co-signed for someone, and 28 percent of the responders in age group 45 to 64 had co-signed for someone.  About 30 percent had someone co-sign for them for a loan or line of credit.  Almost 30 percent of the responders in the age group 18 to 24 did not know that both the borrower and co-signer were responsible for paying the credit bills, mortgages, car loans or rent.

I am surprised that 20 percent of the 18 to 24 year old age group co-signed for others. This is a population that is just building credit. Obviously, 20 percent had enough good credit history to qualify as a co-signer.  Who are they co-signing for?  The survey didn’t provide those details.

It is not uncommon for parents to co-sign for student loans and car loans, because the young adult can’t qualify for the loans on their own.  They want to help their young adult build credit. If the young adult doesn’t pay on time or can’t pay, the parents are not only responsible for payment, but their credit is impacted negatively, along with the student’s.

It is important to know your legal responsibilities when you co-sign for a loan.  I am a broken record regarding the potential impact to your credit.  You may not even be aware that the card or loan wasn’t paid, until you are contacted by a collection agency.  That is why I don’t recommend co-signing for anyone – not even family members.

Credit Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

Categorised in: Civil Penalty, Credit Cards, Credit Report, Credit Score, Debt, Financial, Getting Credit, Money & Identity

This post was written by John Ulzheimer