If you have a limited credit history or a thin credit file, you might find it difficult to get a loan or take out credit. Even if you’ve never had a late payment, lenders may be more wary about taking you on as a client if you have a shorter credit history.
One way you can reduce your risk to a lender is to have a co-signer. A co-signer is another person, usually a family member or a friend, who signs onto the loan with you.
Being a co-signer is a big responsibility. If you can’t make your payments, the co-signer becomes responsible for the loan and the bank can legally come after him or her for the money. You need to make sure that both you and the co-signer understand all the terms, responsibilities, and liabilities of the loan before entering into any agreement.
Be aware: When you take out a loan with a co-signer, both of your credit scores are on the line. If you make regular, on-time payments, it will reflect positively on your credit score and you might be able to move forward in your financial life without a co-signer. If you miss payments or are chronically late, however, that will show in your co-signer’s credit history. If you think you might not be able to make a payment, let your co-signer know and give him or her a chance to make the payment for you.
Be sure your co-signer is someone with whom you are willing to be honest with about your credit history and problems. Know that this person may ask to see your credit report to determine just how risky a proposition it is to co-sign for you.
Before choosing a co-signer, ask yourself if this friend or family member is going to be a good lender. Will he or she harp on you constantly about paying your bills? Will you be trusted to make the payments?
To protect both yourself and your co-signer, consider hiring an attorney to draft a simple partnership agreement that spells out what will happen if payments aren’t made on time and what rights and responsibilities each party has in the transaction.
Building a Strong Credit Report from the Beginning
Consumers Paying Off Debt Helps Economic Recovery
Credit Trends: Does Age Factor into Your Credit Score?
Review: Equifax Complete™ Family Plan
Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.