When determining whether or not it is a good idea to become a cosigner with someone, there are many things to consider. If you believe that person will likely miss payments or they have tons of debt that will drag your credit score down, you might consider not becoming a cosigner.
On the other hand, if they are financially reliable, there can be many benefits to becoming a cosigner.
Let’s dive in and take a look at a few reasons why you might decide to become a cosigner and how it can be beneficial.
It’s important to remember that on-time payments make up more than 35% of your FICO score. In fact, it is one of the most important elements of your FICO score overall.
When you cosign with a borrower that makes payments on time, you get to take advantage of the positive, on-time payment history. Overall, it can have a positive impact on your credit score.
If you cosign with someone that is financially responsible, they will likely pay off their loans on the right schedule. A loan getting paid off on schedule is then reported to the credit bureaus.
These kinds of positive reports tell lenders that you’re able to manage your credit in a responsible manner. The great thing about this is that your credit score could improve. However, it’s also possible that a paid-off loan is closed, meaning it could cause a decrease in your score. This is because it can impact your mix of credit, which is something factored into your overall credit score.
Your credit mix accounts for 10% of your FICO credit score. A lender wants to see that you have a healthy mixture of installment credit accounts and revolving credit accounts.
An installment credit account could be an auto loan, mortgage, or personal loan. A revolving credit account, on the other hand, might be a home equity line of credit or a credit card. If you don’t have a very good mix of credit, cosigning might be a good way to spice up your mix and boost your overall score.
Overall, cosigning can make a lot of sense if you have a good credit score and you don’t have any immediate financing plans coming up. The last thing you’d want is a sudden drop in your credit score due to co signing.
Of course, you should also be ready to be financially responsible in case the borrower can’t take on the debt. Don’t ever assume they will be able to.
Here at Personal Tradelines, we help all kinds of people increase their credit scores with the use of authorized user tradelines. If you’re interested in learning more about how tradelines can help you or your family, make sure to drop us a line.