One of the tough things about not having a credit history is that it can be tremendously difficult to start having a credit history. Lenders can be tightfisted when it comes to borrowers they don’t know — rightfully so — and so you’re often left with low credit limits or high interest rates, and likely some combination of both.
Unless, of course, you have a friend, family member, or perfect stranger willing to stake their creditworthiness on yours. Co-signers aren’t easy to come by, but they come with their advantages, provided you can actually convince someone to agree to the arrangement. There’s basically no upside for co-signers (well….sort of — we’ll get to that) and so finding one isn’t always easy, even if it’s necessary.
Here are s a few tips and tricks in case you find yourself in that position.
1. Ask a Parent, or Someone Who’s Invested in You Otherwise
Most financial advisors say you should never co-sign a loan for anyone, ever. There’s no reason for you to do it! The way the agreement works, you are second in line should the borrower default on the loan. You’ll be treated by creditors as if you owed the money — because you do. And considering that the person you’re signing for doesn’t have any credit or experience with credit, or has bad credit, there’s a reasonable chance they might default and you’ll be stuck with the baggage.
Keep this in mind when asking someone to be your co-signer: you’re exposing them to great financial risk without offering anything at all. It is, indeed, the sort of arrangement only a mother could love, and fittingly, that’s exactly the sort of person you should look to if you need a co-signer.
Someone who is invested in your financial independence, like a parent, guardian, or someone similar is the person to ask: they want you to be on safe footing and understand that they’re in a position to help (that is, of course, if they are in a position to help).
2. It Might Mean a Better Rate
For starters: you’ll be able to get the loan that you need. That’s arguably the most important part of this process. But there are other potential benefits to having a cosinger. A spokesperson from Wells Fargo tells MyBankTracker that the “co-signer’s credit profile does have an impact on the interest rate” they offer on co-signed loans. So, if your mom has good credit, and she’s willing to play ball, that means you could get a few points knocked off of an unsecured loan, which can be a big help.
Your overall credit risk decreases dramatically when someone co-signs with you (provided they have better credit) and so your interest rate is often lowered.
3. Don’t Forget What a Burden This Is For Them
The advice we’re offering here flies right in the face of conventional wisdom regarding money and family — namely that they ought to be kept in separate boxes. And so you, too, must keep in mind that you’ve exposed a loved one to substantial risk and should you default it’s not just credit bureaus’ trust you have to worry about: you run the risk of running a very important interpersonal relationship into the ground.
Your bank thinks of your co-signer as a safety net, but if you think about them that way, you really shouldn’t be asking for a co-signer. To you, they’re are a means to a very specific end — the end being the loan, not the backstop. They trusted you enough to put their money on the line for you, don’t make them regret it.