Should You Co-Sign a Loan for Your Significant Other?

02/09/2016 10:10 am ET Updated Feb 09, 2017

A good relationship succeeds because of compromise: each person gives generously to the other person and enjoys the same in return.

Self-less generosity is the cornerstone of many long-lasting, loving relationships. Just ask anyone who has been in a relationship for years (or even decades). If they still have a "spark", it's usually because they're so selfless.

But is it possible to give too much? The answer might actually be YES.

When it comes to co-signing loans, you might want to think twice...

Here's the situation: One person in a relationship needs a loan for something but their credit score isn't sufficient to get that loan. So they go to the one person who trusts them and is generous -- the other person in the relationship. (Makes sense, right?) Should that other person co-sign the loan?

There's a lot of confusion about co-signing a loan and it's not uncommon for someone to think that they can co-sign a loan... only to be surprised later when their credit score drops dramatically because the other person in the relationship didn't pay.

You should be aware that co-signing a loan is not just vouching for the other person - it's essentially a joint account. That account will be on YOUR credit report and impact credit score. If they miss a payment, it's just like you missed a payment, if they do not pay the account, you are responsible for the debt.

Even if you have a private agreement with your partner, your credit can still be at risk. I went to divorce attorney Jonna Spilbor for more information, and here's what she said: "If your heart (and your wallet) is large enough to want to help your significant other rebuild his or her credit, be smart about the manner in which you do it to avoid damaging your own credit in the process. Co-signing on a loan or credit application will leave you legally liable for payment even if you and your paramour have a "pillow talk" agreement between you. For example, if you agree to use your name, income and creditworthiness to co-sign a loan or credit card for the benefit of your partner with the understanding that your partner will be the one exclusively using the credit (and paying the bill), you will be on the hook legally if your partner fails to hold up his end of the bargain."

She makes an excellent point that everyone in a relationship should be aware of. While a relationship should be built on mutual generosity, there is a point when you can be liable if your partner does not come through.

Perhaps everything will turn out okay in the end and your partner will pay on-time and in full and your credit will remain intact. But it happens over and over when the other partner does not pay on time, and your credit could be damaged. When it comes to co-signing a loan, be aware that there could be serious consequences to your credit if you do.