If you co-sign for a loan, credit card, or even help someone out by putting the cell phone in your name, you may be putting your credit rating at risk.

Any extension of credit to you (a loan) is going to show up on your credit report.  The few exceptions may be a small local company who does not pay to report to the credit bureaus or an individual loaning you money. 

When the loan is paid on time, both the borrower and the co-signer benefit with an account in good standing on their credit file.  However, if the borrower stops paying, the resulting late payments will be reported on both people's credit reports causing credit scores to drop.   If the account goes to collection, it will most likely show up on both credit reports, too.

The banks and financial institutions are going to go after anyone that is responsible for the account and they're going to go after the one most likely to pay.  In the case of parents signing for their child, the bank will come after the parents.  They will end up with the mark against their good credit, as well as have to pay the debt.

Additionally, if the financial institution or collection agency goes to court and gets a judgment for the debt, you then have to go to court and disclose all of your assets.  Plus you may get the added legal and court costs added to your debt.  It truly can become a worst-case scenario, financially and for your credit rating.  Click here to see how long things can stay on your credit report.

WHAT TO DO
1) Don't co-sign for anybody.  If you want to help someone out financially, loan them the money.  Make a written agreement for the loan and both parties sign it.  This way, if they decide not to pay something, you're only out the money and not stuck with years of bad credit.

2) If you are already a co-signer, get the bills and statements sent to your address.  That way you can be sure it is paid on time before it gets delinquent, rather than finding out months later that you have dings on your credit.

3) Check your credit report regularly to be sure there are no errors.  Monitoring your own credit is one of the best things you can do to build your credit rating and get better credit scores.

Remember, think long-term before co-signing anything.  There are probably better, safer ways to help somebody out and protect yourself.