The Risks of Co-Signing for an Apartment
Because rental history typically doesn't show on credit reports, co-signing an apartment for a friend or relative will not increase your debt-to-income ratio. But even if this co-signed debt doesn't appear on your credit record, co-signing an apartment lease does have its risks. Before signing the agreement, ask questions, do your research and make sure you understand what's involved.
Co-signer's Job
Getting an apartment isn't easy for everyone. Some applicants have recent foreclosures or bankruptcies in their past, and these credit issues might alarm landlords, wherein they refuse an application. Having a co-signer on standby greatly benefits applicants in this position. Co-signers generally have good credit histories (landlords will check this individual's credit score and credit report) and they serve as a backup in case the tenant stumbles on financial hardship.
Financial Risk
The biggest risk associated with co-signing a lease is being held responsible for the lease payments. If a tenant skips out on the lease early, the landlord can legally demand payment from the co-signer. Regrettably, co-signers don't have an option with regards to paying the lease. The signature on the lease agreement indicates a co-signer's willingly to take over payments. For this reason, co-signers must have disposable income to support this debt as well their personal obligations.
Credit Score Damage
Landlords can take a co-signer to court. The landlord may first attempt to collect payment from the tenant, but if the tenant refuses to pay, or if the landlord can't locate the tenant, the landlord can sue the co-signer for back rent payments. Going to court over a lease contract can hurt a co-signer's credit score. Judges review the details of the lease contract and will mostly likely agree that the co-signer is responsible. If unable to pay, co-signers risk a credit judgment. Judgments drop credit scores and stay on reports for seven years.
Considerations
A landlord may review your income and present debts and conclude that you qualify as a co-signer on the lease. It's imperative to evaluate your own finances to see if you can meet this obligation. Landlords only have access to debts listed on your credit report, such as mortgages, auto loans and other loans. Expenses not included on your credit report, such as child care, transportation costs, utilities and insurances can hinder your ability to make the rent payment if the tenant doesn't. If uncertain as to whether you can afford the rent in the event of default, don't co-sign the loan.
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