credit score, based on how the borrower manages the loan. For instance, 51-year Ajay Aggarwal decided to co-sign a loan for his son who wants to take a student loan. This may also result in a hard inquiry on his credit report, which could temporarily lower his credit score, albeit marginally.
It affects credit score in the following ways: When the borrower makes timely payments: If the borrower makes timely payments on the loan, it can positively affect your credit score. This shows to creditors that you are responsible for managing debt and can improve your creditworthiness. But if the borrower misses payments or defaults on the loan, it can also negatively affect your credit score.
Late payments or defaults reflect poorly on your credit report, as you are equally responsible for repaying the debt. ALSO READ: How do credit score repair services work? Impact on debt-to-income ratio: Co-signing a loan raises your overall debt obligations, which can affect your debt-to-income ratio. If you apply for additional credit or loans, lenders may consider this increased debt load when evaluating your creditworthiness.
Inquiries and new accounts: Co-signing a loan may also result in a hard inquiry on your credit report, which can temporarily lower your credit score. Additionally, the new account will appear on your credit report, affecting factors such as the average age of your accounts and the mix of credit types. Limited control: It’s essential to recognise that as a co-signer, you have limited control over the loan.
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