Does a Co-Signer’s Credit Score Go Up?

When an individual agrees to co-sign a loan, they enter into a legal agreement to be equally responsible for the debt if the primary borrower fails to make payments. Co-signing can lead to both positive and negative impacts on the co-signer’s credit profile. This article clarifies how a co-signer’s credit can be affected by the co-signed account.

Reporting of Co-signed Accounts

When an individual co-signs for a loan, the account appears on their credit report. Lenders report the account type, original loan amount, current outstanding balance, and payment status to credit bureaus. This includes whether payments are on time, late, or missed, and if the account reaches a severe delinquency like a charge-off. This reporting directly influences a co-signer’s credit score.

Influences on a Co-signer’s Credit Score

A co-signed account directly influences several factors that determine a co-signer’s credit score. Payment history is a significant factor, accounting for approximately 35% of a FICO score. Consistent, timely payments made by the primary borrower, or by the co-signer if necessary, contribute positively to the co-signer’s payment history. Conversely, late or missed payments on the co-signed account will negatively impact the co-signer’s score.

The outstanding balance of the co-signed loan also affects the co-signer’s overall credit utilization ratio. This ratio compares the amount of credit used to the total available credit and accounts for about 30% of a FICO score. A high balance on the co-signed account can increase the co-signer’s utilization, potentially lowering their score, while reducing the balance can improve it. Maintaining a low utilization, generally below 30% for revolving accounts, is often viewed favorably by scoring models.

The age of the co-signed account contributes to the co-signer’s overall length of credit history, which can be a positive factor for older, well-maintained accounts. Adding a new type of credit, such as an installment loan, can diversify the co-signer’s credit mix. This diversification can be beneficial if the co-signer primarily has revolving credit. When the loan is initially opened, the hard inquiry performed by the lender might cause a temporary, slight dip in the co-signer’s score. The primary borrower’s actions directly influence these factors on the co-signer’s credit report, leading to potential increases or decreases in the co-signer’s score.

Managing Account Impact

Co-signers can take steps to monitor and manage the impact of a co-signed account on their credit. Regularly checking credit reports is a good practice to ensure the co-signed account is accurately reported and to track its payment status. Federal law allows access to a free copy of a credit report from each of the three nationwide credit reporting companies—Experian, Equifax, and TransUnion—once every 12 months through AnnualCreditReport.com. Some programs also offer free weekly access. This regular review helps identify any issues promptly.

Maintaining open communication with the primary borrower regarding payment schedules and the account’s status can help ensure timely payments are made. This proactive approach can prevent negative marks on the co-signer’s credit report. Some loans offer a co-signer release option, which allows the co-signer to be removed from the loan agreement.

Conditions for co-signer release vary by lender but commonly include the primary borrower making a specific number of consecutive on-time payments, often ranging from 12 to 48 months. The primary borrower may also need to demonstrate sufficient income and meet credit criteria to qualify for the loan independently. Until a formal release is granted or the loan is fully repaid, the co-signer retains legal responsibility for the debt. A default by the primary borrower will result in negative marks appearing on the co-signer’s credit report, reflecting their continued obligation.