Getting credit after bankruptcy can be difficult. Having a bankruptcy on your credit report shows lenders you did not keep your promise to pay back one or more loans. Because you can improve your credit score only by using credit responsibly, not being able to get credit after bankruptcy can put you in a tough spot. Getting a co-signer on a car loan can help put you on the road back to credit independence.
Having a variety of credit accounts can help you improve your credit score. Ten percent of your FICO credit score comes from the types of credit you use. You can usually get a secured credit card after bankruptcy. Adding a car loan, which is an installment account, will diversify your credit profile and improve your credit score. Having a co-signer may be the only way to get a car loan immediately after bankruptcy, so your co-signer could be key in improving your score.
Making a series of timely payments on your car loan will be the single biggest contributor to your improved credit. Your FICO score's biggest component is payment history, weighing in at 35 percent of your score. Although your bankruptcy will weigh down this part of your score, as time goes by the effect of your bankruptcy will lessen, countered by a history of recent payments. Having a co-signer could make it less likely that you will miss a payment, as the car loan will appear on his credit report as well. Any damaging information will hurt each person's score.
The longer you can make payments on your car loan, the better your score will be, and not just for your payment history. An additional 15 percent of your FICO score comes from the length of your credit history. At first, your car loan will not help this part of your score, but as the months turn into years on your loan, your credit score should rise.
Your co-signer is taking a large financial risk by becoming your partner on a car loan. If you can't afford to make your payments, he will have to make them for you, even if you drive off in the car and never come back. However, the opposite is also true, even if you only signed on to the car loan to build credit. If your co-signer is the true "owner" of the car and the one making the payments, you are still legally liable for all of those payments if the other co-signer skips out on the loan. Because you recently got out of bankruptcy, you wouldn't even be able to file bankruptcy on the loan.
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