Can co-signing a loan negatively affect your credit score?
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My dad has agreed to co-sign on my car loan, but he is currently re-financing his mortgage and is worried that it will have negative effect on his credit score. Can co-signing a loan negatively affect your credit score?
Yes
Unfortunately, the answer is yes. Cosigning your car can negatively affect your father in three ways:
- It will show up on his credit report as new credit, and like all new credits it will lower his credit score.
- His utilization will get higher, which will further lower his credit score.
- The loan will also be included in his debt to income ratio which is an important factor in the mortgage approval process.
In general, it’s always a bad idea to search for new credit 6 months prior to applying for a mortgage or refinancing). Co-signing is the same as new credit.
My advice is to wait with the car loan until AFTER the mortgage refinancing is over.
For more information please see What Is the Downside of Cosigning a Loan.
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