What if a Co-signer Has No Credit History?

If you're having a hard time gaining access to credit, you might consider asking a friend or relative to co-sign your loan and credit card applications. If you find a co-signer with good credit, you improve your chances of getting approved for a loan. However, in some circumstances, a co-signer with no credit history at all may help you gain access to the money that you need.

Credit History

Lenders use history as a guide when reviewing loan applications. When you fail to pay your debts on time, your credit score suffers. Lenders equate low credit scores with high risk. Simply put, lenders would rather lend money to people who have a proven track record of managing debts than people who don't pay their bills on time. Someone without a credit score is a totally unknown quantity to a lender. In fact, no score is pretty much like having a bad score: either way, there's nothing to show the lender that you can handle your debts.

Adverse Action

When a lender denies your application for credit, you receive an adverse action notice that details the basic reasons for your application being declined. You have to find a co-signer who can somehow improve the quality of your application. If your poor credit history cost you the loan, you need to find a co-signer with good credit before re-applying for a new loan. If your co-signer has no credit history at all, the credit history portion of your application remains the same because it's entirely based on your score.

Income Consideration

Income is just as important as credit when it comes to underwriting loans. You might have a stellar credit history but you only have so much cash to spend each month. A co-signer with no credit history could help your cause if you have a decent credit score but very little income. The lender takes both your income and the co-signer's income into account when determining whether you can afford to make the loan payment. A co-signer with plenty of income but minimal levels of debt could improve your chances of getting a loan.

Other Considerations

Rules for co-signers vary among lenders, but many finance firms expect you to find a co-signer with both good credit and plenty of income. The fact that a co-signer has plenty of cash doesn't necessarily mean that the individual in question will help you to make your loan payment each month. A co-signer may have no credit score because he or she has never needed to borrow any money. On the other hand, the co-signer's lack of a credit score may be tied to past financial mismanagement. A conservative underwriter may assume the worst, in which case it's back to the drawing board when it comes to finding a co-signer.

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