My brother — who drives a Mercedes despite previously filing for bankruptcy — asked me to cosign for another luxury car. He earns more than me. How can I help him without ruining my credit?

Your financial security comes first

When you mix family and money, things have the potential to go wrong. A recent FinanceBuzz survey found that 46% of respondents either borrowed or lent $250 or more to a family member — most commonly, a sibling. However, among those lending out money, only 56% got paid back in full.

Meanwhile, 24% of those who lent money to a family member say it hurt their relationship. And only 15% of those who gave a family member a loan said it was a good idea.

Now, agreeing to cosign a loan isn't the same as lending money directly, but you are making it possible for someone else to borrow money.

The problem is that as a cosigner, that loan shows up on your credit report and becomes your financial responsibility. And if a family member is asking you to cosign a loan because their credit isn't strong enough for them to qualify on their own, they may have a history of falling behind on their debts and getting overextended financially. Cosigning a loan could partly put the fate of your credit score in their hands.

That's why it's critical to have an honest conversation with your family member if you're uncomfortable cosigning a loan. Drawing on the brother scenario described earlier, explain that you're uncomfortable with the risk of getting stuck making loan payments. If you’ve previously been burned by loaning money, you could point out that you're wary of a repeat because things didn’t work out well the last time.

You can also mention that you value your relationship and wouldn’t want to compromise it by entering into any financial arrangement. Make the conversation about you and your financial limits.

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How to help without damaging your credit

There still may be ways to help your family member that don’t involve cosigning and are therefore less risky.

If you have the resources, one option may be to lend the money yourself rather than cosign a loan. The reason? If you give out a loan and it's not repaid, you're out the money. But that won't directly impact your credit. It may be wise in this case to draw up a contract that includes the sum of the loan, the repayment schedule and the amount of interest being charged, if any.

Another option could be to help your family member improve their credit so they can qualify for a loan themselves. That could include helping them build a budget or manage their finances.