If you are considering co-signing on a loan for someone to help them out, you need to be very careful. There are horror stories out there from innocent people like yourself that just wanted to help out a friend or family member. As result though they ended up with a ruined relationship and damage to their own credit. If you have been able to keep your own credit on track then you should be congratulated. It can be difficult but it does pay off in the end when you are able to get the credit you need at very good terms.
Some people turn to a co-signer because they have simply been frivolous with their credit. They haven't made it a priority to repay things when they should and as a result they can't get any other credit. For others, they had every intention of repaying their loans as agreed. However, life through them some fast curve balls that made it impossible to do. A third category is those that have never had credit so there is nothing to measure them by in the eyes of a lender.
Many individuals that fall into such situations turn to a trusted friend or family member to co-sign on the loan for them. This means that those individuals are also responsible for the debt that has been incurred. You need to think very carefully before you commit to doing something like this. If the other party defaults on the loan, you will be held responsible to repay it. Is this something you want to commit to for any length of time?
Being a co-signer on a loan for someone can make it harder for you to get the credit you want for yourself. Even if the other party is paying it, you are still attached to it. Legally, you are responsible for that payment if they don't make it. Therefore, a lender may decide that you have extended your available income too much and it would be a high risk for them to lend you money at that time.
Even when the other party is doing a fabulous job of making the payments, there can still be issues you need to be aware of. You don't want your next credit application to be turned down because the lender is using a calculation that shows your debt ratio compared to your income is too high. They will likely be including all of what is due on that loan you co-signed on. If it is a high dollar amount as a well as has a long term applied to it, this could be damage you can't offset.
Many individuals are very responsible though and they have only turned to a co-signer because they had no other choice. They are very committed to ensuring that debt gets repaid as quickly as possible. They don't want the individual that came to their rescue to be punished for doing a good deed. Make sure you take the time to really think about the issue though with your head and leave personal emotions out of it.
The best advice I can give you if you do want to be a co-signer for someone is to stay on top of the information. Work with the lender too so you can get notices of payments that have been made, the amount due, and any past due issues. You can also have the individual give you a copy of their canceled check or the money order statement so you know each payment is being made on time. They may not like doing this, but they need to understand what is on the line for you and respect it.
Some individuals just aren't comfortable co-signing on loans for anyone. This is a personal choice and it should be respected. If you don't feel confident that they individual is going to repay the loan then don't co-sign for them. If you also know you can't cover the payment, then don't do it. They may be able to pay the loan right now but that may not be the case six months from now.