People who have poor credit ratings can use a co-signer to rebuild their credit histories. However, some borrowers can't rebuild their credit even when someone co-signs on a loan or credit card because they fall into the same bad habits that originally led to their poor credit rating.
Co-Signers
People who want to use co-signed accounts to rebuild their credit need to consider a potential co-signer's creditworthiness. Co-signers must have good credit ratings themselves, because they're guaranteeing the repayment of a debt for the primary borrower. The co-signer also needs to earn an income that meets a lender's or creditor's requirements, because the co-signer can be required to repay the loan or credit card debt if the primary borrower fails to do so.
Rebuilding Credit
The primary borrower and the co-signer assume responsibility for repaying a co-signed debt. However, just having a co-signer on a debt doesn't rebuild the borrower's creditworthiness. As with other debts, borrowers need to ensure they pay the bills for co-signed debts on time to rebuild a good credit history. Borrowers also should keep in mind that the payment history for co-signed debts appears on their credit reports and their co-signer's credit reports, even though the borrower is primarily responsible for making the payments.
Credit Scoring
Using up most or all of the credit line on a co-signed credit card could hamper your efforts to rebuild your credit history, even if you pay the monthly bill on time. Bear in mind that the amount of debt you have affects your credit score. For example, the amount of debt you owe affects 30 percent of your FICO credit score, so using up most or all of your available credit on a co-signed credit account may lower your FICO score. An article by Gregory Taggart on the Bankrate website notes that consumers generally maintain higher credit scores by using 35 percent or less of their available credit.
Considerations
People are often uneasy about co-signing a debt because they can't be sure the primary borrower will fulfill the terms of the payment agreement. The U.S. Federal Trade Commission notes that one big problem for co-signers is that creditors and lenders don't notify them about payment problems unless an account is already delinquent. Borrowers who need a co-signer to rebuild their credit might use a tip from the FTC and recommend that the co-signer ask a lender to agree in writing to notify the co-signer about any missed payments. That would give the borrower and co-signer time to work out a payment problem before it gets out of hand and seriously damages their credit.
0 comments:
Post a Comment