I got my first “new to me” car used when I was 23 years old. It was a Prius with only 7,000 miles on it. As a young person with bad credit and in debt, I couldn’t get a car loan. My mom had to cosign the lease from Toyota just so I could get a car. I was very lucky to have my mom help me but not everyone may be as lucky when it comes to leasing an apartment, car, or home loan. Besides having someone that trusts you enough with their credit score, your ONLY alternative to cosigning a lease or loan is to improve your credit.
Cosigning a mortgage, lease or loan can be a heavy burden on your friends or relatives. It’s the only way lenders/leasers will trust a borrower with bad credit. To sum it up, they want someone with good credit to be accountable for the loan if the borrower stops paying. The cosigner will take responsibility for the loan and have to pay it back. Otherwise, this will hurt your credit score. That’s why the only alternative to co-signing for an apartment or loan is to help your friends build up their credit score quickly.
A credit score can be raised within a few months with the right credit tips and through buying tradelines. This post will cover how you can raise your credit score so you can avoid having a co-signer for an apartment lease and loans.
5 Alternatives when you have no-cosigner
Let’s look at the alternatives to cosigning because it can be a much better solution. Also, most people do not want to cosign. Don’t ask them to be responsible for your finances.
- Local Credit Unions
- Loan Sharks
- Secured personal loan (putting up collateral)
- Borrow from someone you know
- Build your credit fast (cheapest solution)
I’m not going into the first 4 alternatives because you’ll end up with higher interest rates. Lenders really count on you to not understand how credit works so they can charge higher interest rates.
Build Your Credit So You Don’t Need a Co-Signer
If you have collections against you, you’ll need to first learn how to get those removed and repair your credit. For those of you without any collections, evictions and bankruptcies, you can build your credit score fairly quickly.
A big part of your credit score is credit utilization, payment history, available credit, and the age of the credit lines. It’s pretty easy to improve all of these by first understanding the credit card mistakes you are making. Just fixing your credit utilization can have a drastic improvement on your credit score.
The real secret to building your credit is called “credit card piggybacking,” where you get added as an authorized user on someone’s credit card. When you get added to a strong tradeline, you get the benefit of that credit card showing up on your credit card.
When looking to purchase a tradeline for sale, you’ll want to consider:
- Credit line amount: If the card has a $10,000 limit, that limit increases your overall credit utilization and helps your credit score.
- Payment History: Having a perfect payment history contributes to a strong positive credit score
- Age of credit line: As an authorized user on a credit card with a 10-year history or more shows a long history of credibility
Each of these factors contribute to a healthy credit score for you. This is something you should consider when managing your own credit cards and keeping lines of credit open. Being an authorized user on a good credit card is like being a co-signer. Your showing the credit reporting agencies that another person trusts you with their credit, which raises your score because you have more “credibility.”
The effects of being an authorized user only last while you are actually an authorized user. That’s why buying tradelines is a temporary “credit boost” and you should apply for loans, apartment leases and credit cards while your score is higher.
How does co-signing work?
It’s tough to get a decent loan without having to pay the poverty premium and it may be even harder for you if you have really bad credit. With very bad credit, you’ll need to have someone cosign to have any credibility for mortgages, loans and leases. The person that co-signs for your lease or loan WILL be responsible for it if you stop making payments. Both you and the co-signer will have your credit score linked to the loan/lease. This can help build your credit or quickly ruin it.
Pretty much everyone will suggest that co-signing is a very bad idea. I completely agree. Don’t do it unless you’re will to lose money and sacrifice your credit score. Additionally, this can only damage the relationship you have with the other person, especially if it’s family.
What does it mean to cosign a lease?
The cosigner is a 3rd party person that is added to your lease between the landlord and tenant. If the tenant stops making payments, the cosigned becomes financially responsible for the payments. In the event that the cosigner does not want to make any payments, they default on the least which gets added to your credit report. This will cause the cosigners credit score to plummet.
At what credit score would I need a co-signer?
The MINIMUM credit score for some really bad loan terms start at 585. Anything lower than that and you’ll need a co-signer for your loan or apartment lease.
With a low credit score around 600, you WILL get charged the highest interest rate possible. Lenders are in this to take advantage of people with bad credit which is called the poverty premium. It’s a HUGE burden and the borrower will be bleeding money in just interest rates. Keep reading this post and I’ll explain how to boost that credit score.
What credit score does a co-signer need?
Your co-signer would need a decent credit score around 650 in most cases.
What makes a good cosigner?
A good cosigner would be someone with a consistent employment history and a credit score of at least 650.
Does the co-signer’s credit score affect the interest rate?
Nope. Even if your co-signer has a credit score of over 800, they will give the borrower with bad credit the worst interest rate legally possible. They want to charge you so much that you struggle end up defaulting on the loan. Okay, that’s a little exaggerated, but I want to make it clear to you that lenders do not have your “best interests” in mind when loaning you money.
Does co-signing hurt your credit score?
Yes, and no. Co-signing links you and the borrower to a loan. You’ll see it appear on both of your credit report and it will work like any regular loan. Both of your credit scores will be hurt if the borrow stops making payments. If the borrower makes payments consistently on time, both of your credit scores will slowly rise. For the co-signer, it’s a high risk, low reward contract.
Does a cosigner have to show up in person for the loan?
I was VERY surprised to find out that the cosigner does not have to be there in person to sign an auto loan. They just need to be a U.S. citizen residing in the United States. I feel like this can easily be used fraudulently and there should be some type of stronger restrictions.
Co-Signing for a car: What happens?
When you have someone co-sign a car lease, the co-signer will become responsible if the borrower stops making payments. The lender can then go after the co-signer financially to pay off the loans and damage their credit score.
Co-Signing for an apartment lease: What happens?
When you sign an apartment lease, you will be responsible for the agreed upon payments for the duration of the lease. The apartment owner will want to know that you have the funds and credibility to consistently make payments. They’ll of course start with your credit score and your recent payment stubs from work as proof of income. If you have a bad credit score and low funds, you’ll need someone to co-sign the lease.
Having someone co-sign the apartment lease guarantees to the landlord that someone with good credit will be held accountable if the rent is not paid. Co-signing helps with keeping someone accountable financially. If the payments are late and/or stop, this will appear on the credit reports of both the renter and co-signer. Both credit scores will drop.
Can a cosigner be removed from a loan or lease?
A cosigner cannot be removed from a loan. They will remain there until the loan is completely paid in full. The same thing applies for car leases.
As for apartment leases, the co-signer can be removed when the lease is completed. Typically, you may have multiple roommates with each of their names on a lease. It’s not unusual to have a name removed or replaced.
Can I sue the person I cosigned for?
It’s America, you can sue for anything you want. But you can be on the hook for any legal fees for frivolous lawsuits, make sure you have a case.
Can a cosigner garnish wages?
The lender can garnish the wages of the cosigner in order to fulfill the loan. That’s why co-signing can be very dangerous if the borrower isn’t a person you trust to keep making payments. If bother the borrower and co-signer cannot pay the loan, the lender is legally allowed to sue and/or put items in collections. Most common for car loans, repossessing the vehicle.
Are there any co-signer services?
It sounds like having a co-signer service as a business would be useful, but it’s way too dangerous. The risk to reward ratio is not in the co-signers favor. I would guess that most of the “co-signer services” online may just be high-interest loans.
Can you get a loan without a co-signer?
If your credit score is below 600, it will be extremely difficult to get a loan without a co-signer. Your credit score can get a temporary boost if you jump on the right paid tradeline. That’s a way of temporarily improving your credit score by adding a large credit line that has perfect payment history and has been seasoned.
The only way to get any decent loan (something without high-interest rates) is to have a good credit score. Paying for a good tradeline now can save you thousands in the future.
Don’t ask someone to cosign anything. That can damage a relationship and it doesn’t really help you with the interest rate for a loan. You’ll still have to pay a high-interest rate if your cosigner has good credit and you don’t. Your best alternative is to build your credit score. This will be more valuable for you in the long run. You can start by checking out these credit tips and the common credit card mistake you’re probably making.
Once you understand how credit works you can take the right steps to improve your score. Then about a month before you want to get a loan, you should buy a tradeline to temporarily give you a higher credit score. This will make it much easier to get a good loan at lower interest rates.