Do You Build Credit If You Have a Cosigner?

A cosigner is an individual who agrees to take on legal responsibility for a debt if the primary borrower fails to make payments. This arrangement often becomes necessary when a primary applicant has limited or insufficient credit history, making it challenging to qualify for a loan or credit product independently. While a cosigner provides a safety net for the lender, a cosigned account can be an effective way for the primary borrower to begin building a positive credit history.

Your Credit and Cosigned Accounts

When you are the primary borrower on a cosigned account, the credit activity is reported to the major consumer credit bureaus under your name, as well as the cosigner’s. This means that every payment, or lack thereof, directly impacts your personal credit report and, consequently, your credit score. The loan or credit line is primarily your obligation, even though the cosigner offers an additional guarantee to the lender. Because the account appears on your credit report, your payment behavior directly influences your creditworthiness.

The cosigner’s role is to reduce the lender’s risk, which increases the likelihood of your loan approval. Despite their involvement, your credit history is actively built and shaped through ongoing account management. This provides an opportunity to demonstrate responsible financial behavior to future creditors.

Building Credit Through Account Activity

The activity on a cosigned account contributes significantly to building your credit, primarily through consistent, on-time payments. Making payments by their due date is the most influential factor in your credit score, often accounting for approximately 35% of a FICO score. Each timely payment recorded on your credit report signals to lenders that you are a reliable borrower. This consistent positive behavior establishes a foundation for a strong credit profile.

Beyond payment history, other factors on a cosigned account also contribute to your credit score. For revolving accounts, maintaining low credit utilization—the amount of credit you use compared to your total available credit—is beneficial. Keeping balances well below your credit limit, ideally under 30%, can positively impact your score. As the account ages, the length of your credit history also grows. Successfully managing different types of credit, known as credit mix, also offers a positive impact.

Managing Your Cosigned Account

Managing a cosigned account is important for maximizing its credit-building potential and avoiding negative repercussions. Understand the specific terms and conditions of the loan or credit line, including payment due dates, interest rates, and any associated fees.

Missed payments carry significant negative implications for both the primary borrower and the cosigner. A single late payment can cause a substantial drop in both parties’ credit scores and remain on credit reports for up to seven years. Successfully paying off the entire loan or maintaining a history of timely payments on a revolving account significantly enhances your credit history. In some cases, after a period of responsible payments and improved credit, it may be possible to refinance the loan or have the cosigner released from the obligation, though this varies by lender and loan type.