Does Getting a Cosigner Help Your Credit?

If you have poor credit or have not established a credit history, you may need to obtain a cosigner to obtain a line of credit, car loan or other form of credit. A cosigner is a person named on the loan who is responsible for repayment if you cannot make your payments, but typically does not directly benefit from the loan. This can help you obtain the items you need to obtain on credit, but it can also help you build or rebuild your credit.

Access to Credit

Obtaining a cosigner can help you qualify for a loan that you might not otherwise qualify for alone. As you make your payments on the loan, your lender will typically report your on-time payments to Experian, TransUnion and Equifax, the main credit reporting agencies in the United States. On-time payments can help establish positive credit, which can help you obtain future credit without a cosigner.

Cosigner Qualification

In order to obtain a loan with a cosigner, you will need to find a person who is willing to accept responsibility for the repayment of your loan if you cannot make your payments. However, the cosigner will also need to have a sufficiently high credit score to qualify on the loan. Your lender will typically want to know that the cosigner can handle the loan payments alone if you default.

Required Disclosure

If a lender agrees to approve a loan with a cosigner, federal law requires the lender to disclose the cosigner's responsibilities. The disclosure notifies the cosigner that he may have to pay the full balance of the loan, plus any collection costs and late fees you accrue, if you fail to make your payments. It must also state that default on the loan may appear on the cosigner's credit report, and that the creditor may execute collection actions against the borrower such as a lawsuit and wage garnishment.

Considerations

Although responsibly maintaining a loan guaranteed by a cosigner may help your credit, it can cause credit damage if you cannot make your payments. Review your finances to make sure you can make your loan payments -- a lender's approval may not necessarily mean that you can handle repayment of the loan. Also, defaulting on a cosigned loan can create ill-will between you and the cosigner responsible for paying your debt.