The views and opinions expressed in this article are those of the author (credit expert John Ulzheimer) and not necessarily those of VantageScore Solutions, LLC.
When you apply for credit or a lease on your own you are referred to as the primary or “individual” applicant. What this means is you are individually liable for following the terms of the agreement you signed with a lender or property manager. These terms likely include a commitment to make payments of a certain amount on a monthly basis. If you were to include a second person on your application that person is commonly referred to as a co-signer.
A co-signer is often required by lenders or property managers when the primary applicant either doesn’t make enough money or the primary applicant’s credit isn’t good enough on its own to warrant an approval. Co-signing, which is extremely common especially with Federally guaranteed student loans, does have risks to both parties involved.
Co-Signing Should be Called “Also Signing”’
Whether you’ve applied for an apartment lease or you’ve agreed to be the co-signer on someone else’s application, there’s really no difference between you and the other applicant. In fact, co-signing could easily be called “also signing” because ultimately there is no difference in the obligations of the primary applicant and the co-signer. You’re both obligors!
There is no such thing as co-signing just to help get someone else through the application process. This is a common misconception about the obligation of the co-signer. They have the same contractual obligation to make payments on a debt as the other signer. Certainly, the primary applicant may be the one who is writing checks or auto-debiting their lease payments every month. And, the primary applicant may be the only one living in the apartment. But, the property manager considers both of you to be equally liable for the lease, even if the payment normally comes from only one of you.
The Risk of Co-Signing
Because co-signing is really also-signing, the property manager can come after both of you in cases of delinquency or default. With apartment leases this means if the tenant stops making payments, defaults on the lease, or leaves a damaged unit after they move out, both signers are on the hook for payments.
If neither signer is willing to make good on their contractual lease obligations then the property manager can and likely will engage the services of a 3rd party debt collector or collection agency. Collection agencies will be able to not only pursue all signers for payment on the defaulted lease, but they will also be able to report the collection account to the credit reports of all signers, not just the primary signer or former apartment resident.
Collection accounts are universally considered to be derogatory credit entries. They can result in lower credit scores and can legally remain on credit reports for up to seven years from the date of the original delinquency with the apartment complex. This can be a tough lesson for the co-signer who may have simply been trying to help someone get an apartment. But, again, this is the importance of understanding the terms of the contracts you sign before you sign them.
Apartment Co-Signing Versus Credit Cards and Loans
When you co-sign for an apartment lease it’s very unlikely that information will ever appear on your credit reports as long as the payments are being made. Normally the only time apartment leases appear on credit reports are when they’ve gone into default and have been assigned to a 3rd party debt collector. The takeaway here is that as long as payments are being made your lease will likely never make its way to your credit reports.
With loans and credit card accounts they will almost certainly appear on your credit reports as soon as the account has been opened. This applies to all signers, whether they are the primary applicant or the co-signer. This underscores the importance of always making payments on time on loans and credit cards because mismanagement will likely be credit reported within a few months.
Checking Your Credit Reports and Understanding Co-Signers
If you are unclear if you are a co-signer on any obligation one way to research the issue is to pull your credit reports. Your credit reports will include a record of accounts where you’re listed as an obligor, with the lease exception described above.
If you signed paperwork with an apartment complex or property management company, you may very well have agreed to be a co-signer. It’s in your best interest to review a copy of the document you signed, which will ultimately include any language as to your liability for the lease, should the primary tenant begin missing their payments.
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