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How to Use a Cosigner to Raise Your Credit Score

Getting a loan and raising your credit score by having someone cosign for you is a triple-edged sword. Cosigning means that another party (usually a person with better credit) signs alongside you to guarantee future payments if you default, drop dead, or are abducted by aliens.

As long as your lender reports to the bureaus, each time you make a payment on time and for the right amount, you and your cosigner both accumulate more positive items. As time goes by, this helps offset earlier negative items on your report. Like falling snow, the good stuff covers all the muck underneath.

Although a cosigned loan can help get positive info onto your credit report, this is a triple-edged sword because

  • You may be borrowing when you shouldn’t. If a professional lender is reluctant to give you a loan, the lender has a good reason. So now the cosigner, who’s not a professional and who likely has emotional ties clouding her judgment, decides that guaranteeing your loan is okay.

  • The cosigner is at risk if you default. The cosigner is fully responsible for the payment. If it takes 60 days for the cosigner to be informed that you haven’t paid on time, his or her credit gets dinged, as does yours.

  • A default could destroy a relationship. If your ability to pay off the loan is compromised and you incur late fees or penalties or default on the loan, your cosigner is fully liable, and her credit score may be damaged. This scenario just may mean the end of your relationship, but it does not end the loan obligation.

If you ask a friend or relative to cosign a loan, make sure that the loan is for as short a period as possible. The longer the loan is outstanding, the greater the chance a problem will arise or the relationship will become strained. Also, put your agreement in writing to make it official and to ensure that you both understand what you’re agreeing to.

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