What Does Co-Signing for an Apartment Rental Do to My Credit?

Adding your rental application could be a signature to a mistake.

Apartment complexes often require tenants to undergo a credit check before approving their rental applications. If a tenant does not meet the necessary credit requirements, he can still rent an apartment provided he has a co-signer with good credit. Give co-signing an apartment rental serious consideration before signing on the dotted line. If the tenant isn’t responsible, acting as a co-signer on his housing application could place your good credit rating in jeopardy.

Credit Impact

Provided the tenant pays her rent on time and does not damage the apartment, your credit should remain unaffected by acting as a co-signer. This is because most apartment complexes do not report rent payments to the credit bureaus. The benefit of unreported rent is that, if the tenant misses a month’s rent but later catches up, your credit won’t suffer from his mistake. The downside is that the tenant’s regular rent payments won’t help build his credit history or boost yours.

Financial Risk

Your liability as a co-signer rests on the tenant’s behavior rather than your own. Thus, you remain at risk from the day you co-sign the rental application until the day the landlord returns the tenant’s security deposit after she moves out. If the tenant damages the apartment beyond what her security deposit will cover, incurs fines for violating the complex’s rules or stops paying rent altogether, the apartment complex will hold you just as liable for payment as the wayward tenant.

Credit Damage

When you are left holding the bill for the tenant’s bad behavior, it isn’t just your wallet that suffers – your credit scores could suffer as well. While apartment complexes do not typically report rent and other expenses tenants incur to the credit bureaus, they will turn the tenant’s debt over to a collection agency if it remains unpaid.

Because you co-signed for the apartment and are equally responsible for paying any outstanding debt associated with that account, the collection agency reports the derogatory debt on your credit report as well as the tenant’s. A collection account is a serious derogatory entry on your credit record and will lower your credit score.

Considerations

If you sustain credit damage as a result of co-signing a rental application for a friend or family member, you can repair the damage over time with good behavior. Recent credit information factors more significantly into your score than older data. The result is that, as the collection account ages, it has less of a negative impact on your scores. After seven years, the collection account will vanish from your credit history altogether.

References

• Moving Today; Know Who Should Sign an Apartment Lease; 2011
• "The Washington Post"; Co-signing a Lease Carries Risk, Responsibility; Sara Gebhardt; February 2006
• MSN Money; When Paying Bills Can Hurt Your Credit; Liz Pulliam Weston; April 2006 (p. 3)
• Federal Trade Commission; The Fair Credit Reporting Act

Resources

• County of Los Angeles Department of Consumer Affairs; Signing or Co-signing a Contract
• Bankrate.com; How Your Credit Score is Calculated; Dana Dratch; 2011