Does Cosigning a Child's Student Loan Impact Credit Scores?

Student loans affect the credit scores of cosigners.

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Even if you never have to make a payment on the loan, cosigning a child's student loan will impact your credit score. Depending on your credit history, the student loan and your upcoming financial needs, you might need to think twice before you agree to be the cosigner on junior's student loans.

Cosigning Basics

When you agree to be the cosigner on a loan application, you're taking responsibility to pay back the full amount if for some reason the child doesn't make the required payments. As a result, your credit report shows the amount of the loan as money that you're liable for paying back. When figuring your credit score, 30 percent of your score depends on how much money you owe, so when you cosign for a student loan, your score will take a hit.

Loan Applications

Each time you apply for a loan as a cosigner and the bank pulls your credit report, your credit history will show an inquiry. Each inquiry lowers your credit score slightly, as the number of inquiries accounts for 10 percent of your credit score. However, as long as you apply for all of the student loans within a short period of time, generally 14 to 45 days depending on the scoring algorithm used, all of the inquiries count as just one when figuring your credit score.

Payment History

As the student loan is repaid -- or not repaid -- it will continue to affect your credit score. Payment history counts for 35 percent of your credit score, and the payment history for the student loan will go on both the child's credit report and your credit report. As a result, if the student makes the payments on time, your credit score will benefit. However, if the payments are late, your credit score will suffer.

Ending Your Obligations

Some student loan lenders allow you to end your obligations as a cosigner if the student shows he is a responsible borrower. The terms and requirements will vary from loan to loan, and some loans may not offer the option at all. For example, a lender might allow you to end your obligations as a cosigner after the student has made a certain number of on-time payments.