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Using a Co-Signer to Help You Get a Loan
A co-signer is usually someone that can trust you, as in a family member or close acquaintance that is prepared to share the accountability for repaying a loan if you are unable to make the payments. Usually a parent will co-sign for their child that has no credit yet or a low credit rating. When starting out in adult life this can be a good method to begin establishing your credit history. On the other hand, the co-signers good credit may help someone with poor credit to get accepted for a loan that they would be denied otherwise.
Zero Credit Rating
We all start out with no credit score as young adults. When we have no credit score it is just about as bad as having a bad score. This is because there is no record of your credibility, which is not handy if you are applying for a loan to purchase a home, car or college education.
Begin Your Credit Score
One method to start your credit rating early on in life, even if you are living with your parents, is to ask your parents to put your name on a utility bill. Whether you pay the bill with your own money or your parents still pay it, so long as the bill is paid on time and in full, it will be a good thing for your credit history. This will make it easier once you are ready to make an important acquisition, like your first house, when you have good credit to your name.
When You Have Bad Credit
When you have not paid your debts on time and your credit score slips down, and you want to take out a loan, you will probably have to rely on a co-singer to assist you when applying for credit. If you are in a lot of debt and have a bad credit rating it will be quite difficult to get accepted for a loan. This is when a co-signer can aid you but they need to have a good credit score. A co-signer also has to be willing to take over the remaining payments that are owed on the loan if you are unable to make payments for some reason.
If you have bad credit, it is up to the lender to deny or approve you based on the information in your credit report. Provided that you know someone who has good credit and adequate belief in your capacity to pay back the loan, you could have a good probability to get the loan and begin raising your credit score. Therefore, a co-signer is a good way to begin or re-build good credit for yourself. Just ensure that you can make the payments on time or you will not be very popular with your co-signer.
W. Wilkie writes about many personal finance subjects, like how to Get Rid of Credit Card Debt and how to Get Out of Debt Fast.
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