How to Say No to Cosigning

Every year, thousands of people face the challenging task of trying to rebuild credit as part of their larger credit repair efforts. For those with bad credit, this task can prove impossible without the help of a cosigner. While it may be tempting to help a friend in need, blind trust isn’t the answer. Sometimes, saying “no” is the only option. Still not convinced? Review the issues below and apply them to yourself. You may find your answer easier to stomach.

Illustrate your situation. Good credit doesn’t always indicate financial flexibility. In fact, taking on new debt as a cosigner can potentially hurt your credit score by increasing your credit utilization ratio, i.e., your total revolving debt vs. your credit limit.

Kevin is asked to cosign a credit card application for his younger brother. Although Kevin maintains positive credit, his credit utilization ratio is hovering at the 25 percent mark, which is higher than he would like it to be. By agreeing to cosign, Kevin will increase his credit limit, but runs the risk of sharing the consequences of his brother’s spending. If the credit card is maxed out, Kevin’s credit score is likely to suffer.

If you are like Kevin, be honest with your friend. Explain that your own expenses prevent you from taking on new debt. Inform him that you are concerned about lowering your credit score and being forced to rebuild credit yourself. An understanding friend will accept your reservations.

Take the blunt approach. Let’s face it: many people with bad credit have trouble managing their finances. If your friend is one of these people, the best approach may be to kindly but candidly highlight the problem. Bad habits are difficult to break, and putting your own credit on the line is a risky venture. If confrontation is too difficult, suggest a trial period of rebuilding credit; if your friend maintains responsible spending habits for six months, then you may consider cosigning. Remember, though, that if your friend ever becomes delinquent with the co-signed account, your credit report will show you to be equally delinquent as well.

List the unknowns. Financial security is important, especially when it comes to family life. If your spouse and children rely on your credit stability, leaving it in the hands of someone else could be disastrous. Making room for your own future is an important component of cosigning. Are you interested in buying a home? Do your kids need braces? Are you responsible for the care of elderly parents? Think of all the things that depend on your credit score, and provide your friend with a list. Chances are, they may not be comfortable asking you to compromise your own security.

Offer an alternative. Turning away a friend in need is never pleasant. If you are unwilling to cosign but would still like to help your friend, think of alternative ways to offer support. For example:

  • Provide free professional advice (e.g., if you specialize in accounting, law, etc.)
  • Help your friend create a budget or financial plan
  • If you are feeling generous, offer to subsidize expenses, or simply provide a cash gift

The decision to say no to cosigning for someone trying to rebuild credit may be awkward and even contentious, but it certainly doesn’t make you a bad friend. While the circumstances of life are vast and subjective, bad credit can put a brick wall between you and your financial goals. Consider the cost of cosigning, and make your decision objectively. A true friend will respect your honesty.