Co-signing a mortgage does affect your credit score, and the effect starts when ready

When you co-sign a mortgage, the lender reports the loan to the credit bureaus under your name. Your credit score drops because the bureaus see you as responsible for a large debt, even though you do not live in the house. The size of the drop depends on your current score, how much the mortgage is for, and what else is on your credit report. For most people, co-signing causes a drop of 20 to 100 points in the first month.

The damage is not temporary. As long as the mortgage exists, it counts against you when you try to borrow money. If the borrower misses a payment, your score drops further — sometimes 100 points or more in a single month. If the borrower stops paying altogether, you become legally responsible for the full amount, and the lender can sue you or report the debt to collections under your name.

For lower-income borrowers, co-signing can make it harder to build credit or borrow for your own needs. Before you co-sign, you need to understand exactly what happens to your credit and what your legal obligations are.

Key Takeaways

  • Co-signing a mortgage adds the full loan amount to your debt-to-income ratio, which lowers your credit score by 20 to 100 points when ready.
  • The mortgage stays on your credit report as long as it exists, even if you never miss a payment, and affects your ability to borrow for a car, credit card, or your own home.
  • If the primary borrower misses payments, your credit score drops further and you become legally responsible for the entire debt.
  • You cannot remove yourself from a mortgage co-signature unless the primary borrower refinances the loan in their name alone or sells the property.
  • Lenders count the full mortgage payment against your income when deciding whether to lend you money, even if the primary borrower makes all payments on time.

How the mortgage appears on your credit report

When you co-sign a mortgage, the lender files the loan with Equifax, Experian, and TransUnion — the three major credit bureaus. The mortgage shows up on your credit report with your name, the loan amount, the monthly payment, and the payment history. It stays there for the life of the loan, which is typically 15 to 30 years.

The credit bureaus use this information to calculate your credit score using a formula that weighs several factors. The mortgage counts toward your credit utilization — the amount of debt you owe compared to the amount you could borrow. A mortgage of $300,000 counts as $300,000 in debt, even if you earn $40,000 a year and have no other way to pay it back. This ratio is one of the largest factors in your score.

The mortgage also counts toward your payment history, which is the largest factor in your score. As long as the primary borrower makes on-time payments, this helps your score slightly. But if they miss even one payment, the damage is when ready and severe.

Why your score drops when you co-sign

Your credit score drops for three reasons. First, the bureaus see you as taking on a large new debt. Second, you now have less borrowing capacity — lenders assume you might need to pay the mortgage if the primary borrower cannot. Third, the mortgage increases your debt-to-income ratio, which is the percentage of your monthly income that goes to debt payments.

Lenders use your debt-to-income ratio to decide whether to lend you money. Most lenders want this ratio to be below 43 percent. If you earn $3,000 a month and co-sign a $300,000 mortgage with a $1,500 monthly payment, that mortgage alone takes up 50 percent of your income. Even if you have no other debt, you are now over the limit. If you already have a car payment or credit card debt, you may not be able to borrow at all.

The drop in your score happens within days of the lender reporting the mortgage to the bureaus. You may not see the full effect until the first billing cycle closes, but the damage is done when ready.

What happens if the primary borrower misses a payment

If the primary borrower misses a payment, the lender reports it to the credit bureaus, and your score drops again. A single missed payment can lower your score by 100 points or more. After 30 days, the lender may contact you directly to collect the payment. After 60 days, the missed payment appears on your credit report. After 90 days, the lender can begin legal action against you.

Once a payment is 90 days late, the lender can report the account to a collection agency. The collection agency can then sue you in court to recover the full amount owed. If the court rules in their favor, they can garnish your wages, seize your bank account, or place a lien on your property. Your credit score will drop to the 300s, and it will take years to recover.

You have no control over whether the primary borrower pays on time. Even if you have a written agreement with them to cover the payments, the lender does not care. If the payment is not made, you are responsible.

How co-signing affects your ability to borrow

Lenders count the full mortgage payment against your income when you explore for new credit. If you want to borrow money for a car, a credit card, or your own home, the lender will see the co-signed mortgage and assume you might have to pay it. This reduces the amount they will lend you.

For example, if you earn $3,000 a month and co-sign a $300,000 mortgage with a $1,500 payment, a car lender will assume your available income is $1,500. If they want your debt-to-income ratio to stay below 43 percent, they can only lend you enough for a car payment of about $645 a month. If you already have other debt, they may not lend you anything at all.

This effect lasts as long as the mortgage exists. You cannot remove yourself from a co-signature. The only ways to get out are if the primary borrower refinances the loan in their name alone, sells the property and pays off the mortgage, or dies and the estate pays off the debt. If none of those things happen, the mortgage stays on your credit report for the full term of the loan.

The difference between co-signing and being on the deed

Co-signing a mortgage is different from being on the deed to the property. When you co-sign, you are responsible for the debt but you do not own the house. When you are on the deed, you own a share of the property. Some mortgages require both — you co-sign the note and are on the deed. Others only require a co-signature.

If you are only a co-signer and not on the deed, you have no legal claim to the house. If the primary borrower stops paying and the lender forecloses, you lose nothing except your credit score. But you are still responsible for the debt. The lender can still sue you, garnish your wages, or report the debt to collections.

If you are on the deed as well as a co-signer, you own part of the house. If the lender forecloses, your ownership stake is wiped out. You also lose the ability to sell the house without the primary borrower's permission, and you may be liable for property taxes and homeowners insurance if the primary borrower does not pay them.

When co-signing makes sense and when it does not

Co-signing makes sense only if you are willing to pay the mortgage yourself if the primary borrower cannot. If you cannot afford to make the payment, do not co-sign. If you are planning to borrow money in the next few years — for a car, a home, or anything else — do not co-sign. The mortgage will reduce the amount you can borrow and increase the interest rate you pay.

Co-signing also makes sense only if you trust the primary borrower completely. If there is any chance they will lose their job, become ill, or straightforward stop paying, your credit and your finances are at risk. If you have any doubt, ask them to find a co-signer with a higher income or better credit, or ask them to wait until they can may have access to on their own.

For lower-income borrowers, co-signing is especially risky. If you are already living paycheck to paycheck, taking on a large mortgage obligation can push you into debt you cannot escape. If the primary borrower misses a payment, you may not have the money to cover it, and your credit will suffer for years.

How to protect yourself if you do co-sign

If you decide to co-sign despite the risks, take steps to protect yourself. First, get a written agreement from the primary borrower stating that they will make all payments on time and that they will notify you when ready if they cannot. Second, ask the lender for permission to receive payment notices so you know if a payment is missed. Third, check your credit report every few months to make sure the mortgage is being reported correctly and that no payments are late.

You can get a free copy of your credit report once a year from each of the three bureaus at AnnualCreditReport.com. This is the only official source for free credit reports. Do not use other websites that claim to offer free reports — many charge a fee or sign you up for a credit monitoring service.

If you see a missed payment on your credit report, contact the lender when ready and ask what happened. If the primary borrower missed a payment, contact them and ask them to pay it right away. The sooner the payment is made, the less damage it does to your credit.

Frequently Asked Questions

Can I remove myself from a mortgage co-signature?

No, not directly. The only ways to remove yourself are if the primary borrower refinances the loan in their name alone, sells the property and pays off the mortgage, or if the mortgage is paid off for any other reason. You cannot ask the lender to remove you, and the primary borrower cannot remove you without refinancing. If you want out, you will need to ask the primary borrower to refinance.

Does co-signing hurt my credit score even if payments are on time?

Yes. Your score drops when ready because the mortgage increases your debt-to-income ratio and your total debt. Even if every payment is made on time, the mortgage counts against you when you try to borrow money. The score damage is permanent as long as the mortgage exists.

What is the difference between a co-signer and a co-borrower?

A co-signer signs the promissory note but is not on the deed. A co-borrower signs the note and is on the deed, meaning they own part of the property. Both are legally responsible for the debt, but a co-borrower also has ownership rights and obligations. Most lenders use the terms interchangeably, so ask the lender which one you are before you sign.

If I co-sign, can the lender come after me if the primary borrower declares bankruptcy?

Yes. Bankruptcy does not erase a co-signer's obligation. If the primary borrower files for bankruptcy, the lender can still pursue you for the full amount owed. The primary borrower's bankruptcy may delay collection efforts, but it does not eliminate your responsibility.

How long does co-signing stay on my credit report?

The mortgage stays on your credit report as long as it exists, which is typically 15 to 30 years. Even after the loan is paid off, it may stay on your report for up to seven years. During that time, it affects your ability to borrow and your credit score.