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Rebuilding Your Credit – The Cosigner

signFor many people who have damaged credit the world can seem to have become a much smaller place. You still see all of the same opportunities as before, but instead of being able to take advantage of them, the lack of credit means that you must often sit on the sidelines. But one way those with damaged credit can get back into the game is to seek a co-signer which will more or less guarantee any given loan. This practice is filled with possibility and can be a great idea if properly executed. Here we will take a look at some tips for seeking a co-signer.

  • See things from their perspective – The first step to seeking a co-signer is to look at things from their perspective. If you fell on hard times due to a divorce or illness your friends or family members may be happy to co-sign for you and help you get the financing you need. But if your credit became damaged due to mismanagement of your money, those around you may be reluctant to help. Either way, it is best to look at things through their eyes and not take a “no” answer personally.

  • Be prepared to demonstrate your ability to repay – If you are serious about convincing a loved one to cosign for you it is a good idea to be prepared to demonstrate to them exactly how you will repay the loan. Since they will essentially act as the bank, you should be prepared to show how much money you earn every month and account for all of your expenses.

  • Consider securing the account – One way you may be able to convince a weary co-signer to help you is to secure your account. This can be done by opening a certificate of deposit account in both people’s names, and then you deposit an amount equal to percentage of the loan. For example, if you want to get an auto loan for $10,000, you could secure it with $3,000 in the bank. That way your co-signer will have the peace of mind that, should you default on the loan, there are resources to continue the loan payments until a better option can be found.

  • Start slow – If you are simply looking to rebuild your credit, but don’t have a particular credit need, it would probably be a good idea to start off with a low credit amount, such as a credit card for $1000 or $2500, and then build from there. As you reliably manage this credit your co-signer will have an opportunity to gain trust in your ability to repay, and may be prepared to help you out in a more extensive way in the future.

  • Make all payments on time – Probably the most important aspect of seeking a co-signer is to pay the loan on time, and to even pay extra when possible. Setting up automatic payments is the best way to ensure that you never go late on a loan payment. And, in the case of credit cards, be sure not to allow the balance to get too close to the limit.

Asking a loved one to co-sign a loan for you can be a delicate process. Remember that their cosigning for you is essentially a leap of faith. Repay the loan as agreed, even making extra payments, and always respect that special favor they did for you by taking on the risk of your loan.

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