How does co-signing a car affect credit? Part Of Financing a Car With a Co-Signer In this series Financing a Car With a Co-Signer Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial decisions by offering interactive tools and financial calculators as well as publishing unique and impartial content. This allows you to conduct research and compare information for free to help you make sound financial decisions. Bankrate has agreements with issuers such as, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make money The products that appear on this website are provided by companies who pay us. This compensation could affect how and where products appear on the site, such as such things as the order in which they be listed within the categories of listing in the event that they are not permitted by law for our loan products, such as mortgages and home equity and other home lending products. However, this compensation will have no impact on the information we publish, or the reviews that you read on this site. We do not contain the vast array of companies or financial deals that might be accessible to you. SHARE: Jupiterimages/Getty Images
3 min read published September 20 in 2022.
Written by Mia Taylor Written by Contributing Writer Mia Taylor is a contributor to Bankrate and an award-winning journalist who has two decades of experience and worked as a staff reporter or contributor for some of the nation’s leading newspapers and websites including The Atlanta Journal-Constitution, the San Diego Union-Tribune, TheStreet, MSN and Credit.com. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are committed to helping readers gain the confidence to manage their finances with clear, well-researched information that breaks down otherwise complex subjects into digestible pieces. The Bankrate promises
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Co-signing for a loan can hurt your credit. In the event of default or late payments, it will impact your credit score as well as the primary credit score of the borrower’s. Your score may also decline by a few points since the initial credit assessment.
Co-signing an auto loan affects the co-signer’s credit If you co-sign an auto loan, your credit could be slightly affected by the inquiry made when you apply. You could also see some slight declines of your credit rating because your average age for accounts will decline. However, your credit score could improve in the event that you pay on time for the loan as it can add positive history of payments to your credit report. However, if the principal borrower is unable to pay and the co-signer isn’t able to pick up the slack your credit score could suffer. Furthermore, you could have credit cards and loans in the future. After the loan exceeds 30 days due date, it can be recorded to the lender to the major credit bureaus — Experian, TransUnion and Equifax — and tank your score on credit. If the loan remains delinquent and co-signers are involved, their credit score is hit, it will take an even more significant damage. The unfortunate thing is that repossessions and late payments remain in your credit file for up to seven years, but the impact decreases over time. What happens when you have the auto loan co-signer affects the credit score of the principal borrower you denied an auto loan due to limited credit experience? Co-signing with a person with outstanding credit could boost your chances of approval since the lender will be less liable. Therefore, you can be accepted for the auto loan and begin to build a solid credit scores as you pay on time for the loan. A co-signer could also aid you when your score is low due to past financial mishaps. Payment history accounts for 35 % of the credit score making sure you are current with auto loan repayments over the loan period could boost your score — assuming you manage all other debts with care. When to be co-signer for a car loan Co-signing for a car loan can be risky and affect your credit score in the event that it’s not managed properly. There are times when co-signing with a friend is sensible If your friend or relative has a proven track record of employment with a steady income, and you’re confident that they will make timely loan payments. Your child has little to no credit history, and you’d like to help them build credit from the ground up. You can afford to make your monthly payments if the primary borrower is in debt. When to have co-signers for an auto loan Co-signers can help you get approved for the car loan that has a reasonable interest rate. It is a good idea to have someone you know on board: You earn a stable income and is able to pay for the monthly loan payment, insurance , and maintenance expenses that come with the vehicle. You always make your payments punctually and have funds saved in case of a financial emergency. You aren’t able to get an auto loan because of a lack on credit or past mistakes. The main thing to remember is that whether you’re contemplating co-signing for on a auto loan or asking someone else to co-sign on your behalf, consider all the potential risks prior to proceeding. There are a variety of important factors to consider. Both arrangements can mean negative consequences for your credit and your overall financial situation if there is a financial crisis or if loan payment isn’t received punctually. Furthermore, important relationships could be affected, which can be a reason why the cost that come with co-signing an automobile loan or getting co-signers outweigh the benefits.
Written by Contributing Writer Mia Taylor is a contributor to Bankrate and an award-winning journalist who has two decades of experience and worked as a staff reporter or contributor for some of the nation’s leading newspapers and websites including The Atlanta Journal-Constitution, the San Diego Union-Tribune, TheStreet, MSN and Credit.com. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are dedicated to helping their readers feel confident to control their finances with concise, well-studied and well-researched content that break down complex topics into digestible chunks.
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