While you can legally be a co-signer with a bankruptcy on your credit history, in reality, it might be hard to accomplish. If you can manage to become a co-signer, the benefits to you could be substantial. Assuming you and your fellow co-signer handle your debt responsibly, your credit score has nowhere to go but up. Over time, it could even overshadow the effects of your bankruptcy and allow you to qualify for a loan on your own.
Qualifying As Co-signer
Co-signers are joint debtors who are fully responsible for the repayment of a loan. When you apply for a loan as a co-signer, the lender will examine both your credit and that of your joint applicant. With a bankruptcy in your credit history, some creditors will deny you for the loan, even if your joint applicant has a perfect credit history. In other cases, a creditor might approve your loan based on the strength of your fellow co-signer. Your approval will be based on the lending criteria of the individual creditor. Since your credit score will likely be lower than the ideal qualifying range of 661 to 850, you and your co-signer may face higher interest rates on your loan if you do qualify.
The main benefit of co-signing a loan after bankruptcy is that you get a chance to repair your credit. It can be hard to get credit after bankruptcy, and it takes credit to rebuild a credit score. With 35 percent of your FICO score devoted to your payment history, getting new credit and paying it off successfully is a major step toward credit repair. You also have a co-signer to help you make payments if you find yourself in financial difficulty again.
As a co-signer, you have a legal obligation to repay the entire loan you take out. If your fellow co-signer skips town or otherwise refuses to pay, the creditor has the legal right to come after you for full repayment. This is true even if you received no personal or direct benefit from the loan. For example, if you co-sign on a loan for a boat and the other co-signer sails away with the boat, you still have to pay off the loan. Any missed payments will show up on your credit report, which can be damaging as you try to repair your credit after bankruptcy.
If you can’t qualify as a co-signer after your bankruptcy, you might consider becoming an authorized user on an account. As an authorized user, you won’t be legally responsible for the debt on an account, which falls 100 percent to the account owner. However, after you sign on to the account as an authorized user, the payment history of that account will appear on your credit report. While some credit scoring models don’t include authorized user accounts, some do. In either case, a successful payment history over time can help convince lenders that you are responsible with credit.
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