The bonds of family and friends are strong. It is normal to have a desire to assist grown children, extended family members and even close friends during tough economic times. On occasion, you may consider assisting them by cosigning a loan that will allow them to purchase an automobile, obtain a credit card or engage in other financial transactions. However, doing so is often a poor choice and can have a severe impact on your own credit score, assets and more.
Before you sign your name on the dotted line, you must seriously consider several things. It is important for you to realize that a bank or financial institution turned down your relative or friend because of a bad credit history or a lack of credit history. The lender felt that the borrower is a high risk and will likely default on any extended credit. If a lending institution deems the borrower a high risk, you must seriously evaluate your friend or relatives ability to meet their financial obligations in a timely fashion.
When you cosign a loan, it is imperative that you understand the financial commitment you are making. You are agreeing to be financially responsible for repaying the loan should the primary-borrower default on their payment obligation.
Prior to cosigning a loan, make certain you can afford to pay the debt. When you cosign a loan, you are taking on additional debt. You may feel comfortable that the borrower can meet their obligations; however, sometimes life delivers the unexpected. People lose their jobs, become ill, die or are simply irresponsible and living beyond their means. If the borrower defaults on the loan, you are responsible and must pay the outstanding debt.
All cosigned loans show on the cosigner's credit report. Your credit report will contain information about timely and late payments. If the borrower makes the payments on time, your credit score may improve because of the positive payment history. Alternately, the cosigned loan may affect the cosigner's debt-to-income (DTI) ratio and prevent them from obtaining credit for auto loans, mortgages and more.
As a cosigner, you must realize that any late payments made by the borrower could decrease your credit score. In some instances, the lender does not inform the cosigner about the borrower's late or defaulted status. By the time you are aware of the situation, it is often too late to save your credit rating.
Should your friend or relative default on the cosigned loan, the creditor could refer the account to a collections agency. The agency will come after you to pay the outstanding balance of the loan. You may have to pay late fees, have your wages garnished and lose any property assets used as collateral for the loan.
Even after the debt is paid, the collections actions will appear on your credit report and significantly lower your credit score. Your excellent credit has suddenly turned into bad credit because you simply wanted to help a family member or close friend.
Studies performed by the Federal Trade Commission demonstrate that three out of four cosigned loans go into a default status. This grim statistic clearly shows that you are taking an immense risk when you cosign with a friend or relative on a loan.
While saying no to any cosign requests could damage your relationship with the individual, the damage done to your own financial status and personal security could be devastating. Instead of cosigning a loan, you could offer to extend a personal loan to the individual at a low interest rate. Doing so can allow you to assist your friend or relative and preserve your good credit rating in the event they default on your agreement. It is also ok to say no to any financial requests.
Because you care, you may want to advise your friend or relative to review their credit report. Tell them to make certain that the report does not contain any inaccurate, misleading or outdated information that is erroneously lowering their credit score and preventing them from obtaining a loan.
Lexington Law can assist your loved ones in repairing their bad credit. Since 1991, we have served over 1/2 million clients and have successfully assisted them in improving their credit scores. In addition, we offer a free credit consultation.
How To Afford the Credit Score You Want
So you want to improve your credit score, but you don’t have the money to pay down your credit cards in the next month. Don’t worry—none of us do. There are ways to improve credit score beyond what’s plaguing you now. Check out this post for a few tips on getting back your credit, your paycheck, and your financial freedom.
The first step is getting rid of negative information on your credit report. Believe it or not, many people with credit problems have erroneous information on their credit reports. And your credit report isn’t inaccessible—you can buy a copy of it (sorry, but it’s not too expensive) from each of the three major credit bureaus in the United States and take a look for yourself or order one free copy a year. You can run into lots of things, from accounts that don’t belong to you to charges that were paid ages ago. Negative info can stay on your credit report anywhere from three to seven years—talk about seven years’ bad luck!
At this point you’ve got two options: you can take matters into your own hands and dispute the wrong points on your credit report, or you can hire an attorney. Before you hit the brakes too hard, you need to know two things about the word “attorney”: 1) it’s not as expensive as you’re thinking, especially for this kind of stuff, and 2) having an attorney makes the process infinitely simpler for you. Paying for an attorney when you have credit problems? Yes. The right attorney will get your problems solved much sooner than you could on your own (if you’re the average American with a 9 – 5 who probably didn’t study credit, taxes, or litigation in law school). It’s worth it.
The next step isn’t easy, but it’s doable. You don’t have to pay off your credit cards—but you need to do what you can to pay down each card to somewhere below 50%. There may be some belt-cinching here, but some things just need to be done to rebuild credit. I’m not going to pretend to know what your financial situation is; I have lots of advice on to pinch pennies here and scrape by there. I’m sure you’ve heard lots of it before. The point is, if you want your credit and your finances to change, then you might have to make some changes. Don’t worry—change isn’t scary at all. And when you’ve regained your credit score through eliminating negative information from your credit score and paying down some of the credit cards, you’ll never regret having gotten out from underneath that burden.
What's a Good Credit Score?
Whether you’re about to take any loan out, for instance on a house or a car, it will all come done to one number: your credit score. This three digit number, generally between 300 and 850, will tell banks and credit card companies about your borrowing and repaying history. It will show your creditworthiness. Essentially, this number may make or break the big purchases in life you desire.
The Fair Isaac Cooperation (FICO) is the company which manages the reporting dealing with credit. Generally your credit will fall between 600 and 700, unless you have some drastic debt or circumstance. 35% of your credit score deals with your payment history. It is important to make scheduled payments on time and to not go into extensive debt. 30% of your credit score deals with how much amount of money is still owed (different things are looked at such as if you max out your credit).
15% of your credit score deals with your credit history. Building up good credit is an excellent way to establish good credit history. When I began college, my mom wanted me to being to use a credit card carefully to establish good credit. I pay it off in full before the scheduled due date each month and this allows me to feel free of debt. When used wisely, credit card purchases can help you in the long run, by helping your credit score.
10% of your credit score is determined upon your inquiries for credit card applications. Be careful with how many of these you submit; they can affect your credit score. The remaining 10% deals with the type of credit you have such as mortgages, installments, or car loans. The higher your credit score, the lower the interest rate. With the economy not doing so well, we could all use lower interest rates.
When trying to clean up your credit score, think of each area in which your credit score is comprised of. By focusing on this specific area, you can pinpoint what changes need to be made to improve your credit score. Cleaning up your credit score takes time, so don’t feel too discouraged at first. Carefully evaluate ways you can adjust your borrowing and repaying habits and you’ll be on the road to a better credit score. Essentially your credit history becomes a number, your credit score, which will be a large factor in future loans that you are able to obtain.
The Fair Isaac Cooperation (FICO) is the company which manages the reporting dealing with credit. Generally your credit will fall between 600 and 700, unless you have some drastic debt or circumstance. 35% of your credit score deals with your payment history. It is important to make scheduled payments on time and to not go into extensive debt. 30% of your credit score deals with how much amount of money is still owed (different things are looked at such as if you max out your credit).
15% of your credit score deals with your credit history. Building up good credit is an excellent way to establish good credit history. When I began college, my mom wanted me to being to use a credit card carefully to establish good credit. I pay it off in full before the scheduled due date each month and this allows me to feel free of debt. When used wisely, credit card purchases can help you in the long run, by helping your credit score.
10% of your credit score is determined upon your inquiries for credit card applications. Be careful with how many of these you submit; they can affect your credit score. The remaining 10% deals with the type of credit you have such as mortgages, installments, or car loans. The higher your credit score, the lower the interest rate. With the economy not doing so well, we could all use lower interest rates.
When trying to clean up your credit score, think of each area in which your credit score is comprised of. By focusing on this specific area, you can pinpoint what changes need to be made to improve your credit score. Cleaning up your credit score takes time, so don’t feel too discouraged at first. Carefully evaluate ways you can adjust your borrowing and repaying habits and you’ll be on the road to a better credit score. Essentially your credit history becomes a number, your credit score, which will be a large factor in future loans that you are able to obtain.
Cleaning Up Bad Credit
Let’s face it. Sooner or later, we may all have reason to feel suffocated by money. The bills can become overwhelming and seemingly impossible to handle. We may feel that it is in control of us, and that we are buried in a never ending hole—especially if you are ever denied a loan due to a poor credit score. However, there is light at the end of the tunnel. No matter your credit score, there are ways to clean up your credit history and feel relief from the stress a poor credit history may create.
A particular scene in the movie “Confessions of a Shopaholic” of the main character terrifies me. She has maxed out her credit cards and is not able to use them at the store. By this point, her credit report is already in major trouble and needs to re-evaluate her spending habits. Becoming debt free is exactly that: freeing.
There are many avenues available to help you clean up your credit score. It will take diligence and persistence, but in the end it will be worth it. The first step to clean up your credit report is to obtain a copy of your report. On the Internet, there are multiple sources that will provide you with your credit report. Once a year, you can receive a copy of your credit report for free.
Because as humans we can make errors, it is important to check your credit history for errors. Also, identity theft can damage your credit score. Keep a careful eye on your credit history to ensure that all transactions are correct. If you find something that is incorrect on your credit report, it is important to send a letter in writing to the credit bureau from which you obtained your report from and to the information provider. Credit fraud is scary, but keeping a close watch on your transactions can be a good preventative move to further damage. Include copies of cancelled checks or any other items that will help your case to clean up your credit score.
The credit bureau will then investigate your arguments and send you back a letter with their decision as to any changes. You may repeat this process over and over again to ensure you’re your claim to any inaccuracies on your credit history is met. It takes diligence and determination, but it can be done.
A particular scene in the movie “Confessions of a Shopaholic” of the main character terrifies me. She has maxed out her credit cards and is not able to use them at the store. By this point, her credit report is already in major trouble and needs to re-evaluate her spending habits. Becoming debt free is exactly that: freeing.
There are many avenues available to help you clean up your credit score. It will take diligence and persistence, but in the end it will be worth it. The first step to clean up your credit report is to obtain a copy of your report. On the Internet, there are multiple sources that will provide you with your credit report. Once a year, you can receive a copy of your credit report for free.
Because as humans we can make errors, it is important to check your credit history for errors. Also, identity theft can damage your credit score. Keep a careful eye on your credit history to ensure that all transactions are correct. If you find something that is incorrect on your credit report, it is important to send a letter in writing to the credit bureau from which you obtained your report from and to the information provider. Credit fraud is scary, but keeping a close watch on your transactions can be a good preventative move to further damage. Include copies of cancelled checks or any other items that will help your case to clean up your credit score.
The credit bureau will then investigate your arguments and send you back a letter with their decision as to any changes. You may repeat this process over and over again to ensure you’re your claim to any inaccuracies on your credit history is met. It takes diligence and determination, but it can be done.
The trusted leaders in Credit Report Repair
What are you doing to improve your credit?
Few things can have a more devastating effect on your lifestyle that poor credit. Thankfully, the law gives you the right to do something about it.Lexington Law is the trusted leader in credit repair. Having served over 500,000 clients since 1991, they have the experience necessary to make credit repair work for you.
How Lexington Law's credit repair service works
The lawyers of Lexington Law will fight to remove negative items from your credit reports, so you can improve your credit score, and start living life without limitations.What you get
Along with outstanding 24/7 client support, their service includes unlimited disputes and deletions. Lexington will not rest until you are satisfied with your credit report results.Actual Lexington Law client reviews
My experience with the Lexington Law Firm has been wonderful from beginning to end and the results you achieved are remarkable. It is also noteworthy, that the fee I paid for such superior professional service must be one of the truly great bargains of all time. My warmest best wishes to you all.
- R.S., Lexington client
Thank you for all the wonderful work your staff has done on my behalf. The creditors that I wanted removed are no longer there... I couldn't have done it without you, nor would I ever want to. You and your staff are truly professionals and I bow to you.
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