5 Reasons to Think Twice Before Co-signing Credit Union Loans with Your Kids

Using credit union loans for traditional large purchases, such as homes and vehicles, is a great way for young adults to build credit history. The catch is it's sometimes difficult to obtain that first loan without a track record of successful payments. Your established credit record makes you eligible to co-sign on credit union loans for your kids, but that can sometimes be a risky option. Carefully consider the risks below before you sign on the dotted line:

Risks of Co-signing Credit Union Loans With Your Kids

Co-signing for a loan isn't simply a matter of vouching for someone. You become responsible for the debt if your child fails to make timely payments. According to the Federal Trade Commission, as many as three out of four co-signers end up paying all or part of the loan. While a loan can help your kids build their credit history, late payments or defaults will ding your own credit rating.

Are you planning a major purchase of your own in the near future? Co-signing does not by itself hurt your credit, but the debt does show up on your credit report and could negatively impact your debt-to-income ratio, making it more difficult for you to get your own loans approved.

In addition to putting your own credit at risk, if you co-sign a loan for one of your kids, you're creating a safety net, keeping them from upholding their own responsibilities and learning a valuable lesson about adulthood.

Alternatives to Co-signing Loans

Instead of co-signing on a loan, here are some other options that can help your children financially, but won’t jeopardize your credit score:

  • A secured credit card is a low-risk way to build a credit history. The cardholder puts down a deposit against purchases, so the funds are guaranteed, but transactions are reported as traditional credit card activity.
  • Loan money directly to your children. You still run the risk of losing the money, but it won't impact the credit scores of either you or your kids.
  • Make a lump-sum cash gift. Under certain conditions, cash gifts can be used toward the down payment on a home.
  • Start teaching your kids about finances at an early age. Help them develop sensible habits regarding budgets, credit and living within their means.

Learn More at Clark County Credit Union

If you’re hesitant about co-signing credit union loans and would like to explore other options for your children or other family members, check out Banzai for a plethora of financial resources, or contact us today at 702-228-2228.