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Does cosigning for a (car lease $250) loan affect my credit score?

So I have to cosign for my wife's car (monthly $250), got few questions - 1) will it affect my credit score (currently i have 780+) and by how much? 2) I am also planning to buy house within 2-3 months (loan around $417K), will it affect that?

The lease is $250/mth for 24 months. Her credit is not that good that she can get a lease.

Appreciate any help.

-V

Mar 04, 2012 by vismay from Jersey City, NJ  |  Flag
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4 votes

I would wait until after the home purchase. When buying a home, you may need to rely on your credit alone, as mortgage companies will look at the lower score between the spouses, and you may not qualify, or may have significantly higher interest rates as a result. If you cosign for the lease, it will show up on your credit report as a monthly obligation you would have to pay if she didn’t. In order to qualify for the mortgage, they will look at your income alone (since you would not include your wife on the house loan), and then look at all your mandatory monthly obligations including the proposed new housing obligations (which then would also include your wife’s monthly car lease payment). The higher the monthly obligations compared to your income, the harder it gets to qualify for the loan. There is no exact science, just know the higher the “DTI” (debt to income ratio), the harder it is to get approved.

After you acquire the house, you can buy and borrow whatever you want and they cannot take the loan away from you, so the house should come first. As far as your primary question, will it affect your credit, it will show up on your credit report. If it is paid on time, it will not hurt, and may help the score (but could jeopardize a home loan because of the monthly obligation – about the only borrowing circumstance where you have to PROVE your income and your monthly other expenses). But if it is not paid on time, it can hurt.

I co-signed on a lease once, and the other party paid every payment on time. What they didn’t disclose to me was that they turned in the car with damage, and when invoiced for the damage, did not pay for it. I did not receive a copy of that invoice, nor are they legally obligated to send me a copy. I found out when my credit report showed a collection for that item. So to answer your question about can it hurt your credit – absolutely….

2 Comments   |  Flag   |  Mar 05, 2012 from East Dundee, IL
vismay

Thanks for the answer. So even if it comes to my credit report as monthly obligation I should be able to qualify for the loan as it's only $250/month obligation. And my salary is easily greater then 50% of the (Mortgage + tax + HOA + Car Lease + any other loan/expense). Please advise ?

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Flag |  Mar 05, 2012 near Jersey City, NJ
David Schlossberg, RFC, AIF

With a 780 score, I would very much think you'd be okay, but many factors go into that including down payment amount, monthly PMI costs if 20% not being put down. 42% is the typical target you want to be under, but with a very high score, much more latitude is allowed. If any doubts, you can shop for a mortagge provider and get pre-approved (not pre-qualified, but pre-approved which is after evaluating all items in great detail).

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Flag |  Mar 05, 2012 near East Dundee, IL

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Brian C. Sheely Level 3

It will certainly affect your score but it may have a positive impact and it may have a negative impact. The 3 major credit bureaus have different calculation methods that are very difficult to understand/grasp. Just the inquiry alone can have an affect on your score before even proceeding with the loan agreement. In regard to the house purchase, the amount of debt compared to the amount of income is a factor in calculating the overall score and the terms of the home loan. More obligated debt payments to the same amount of annual income is an issue you will face, most likely. There is a lagging time factor that may not show up at the time of application, but it might. For instance, if you had a late payment on revolving debt, such as credit cards, and you then pay it all off -making it look better in your overall financial picture- you would still have to wait 30+ days for it to show up in an accurate way for the credit bureau to reflect it, thus your end-score.

Comment   |  Flag   |  Mar 07, 2012 from Baton Rouge, LA

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