I currently have no credit. Not bad credit, no credit. I am interested in purchasing a new vehicle and a family member has offered to cosign. However, we've been offered zero percent interest because of her excellent credit, but only if she's the primary and I cosign. If we do this and I am the one who makes the payments monthly, will me being the cosigner have a positive effect and establish my credit, even though I am not the primary?
- SSL
Dear SSL,
Yes, being a cosigner on a car loan will help you build your credit history. The primary loan holder and cosigner share equal responsibility for the debt, and the loan will appear on both your credit report and hers.
Missed Payments on A Joint Account Will Hurt You Both
Because the account and how it is paid will appear on both of your credit reports, it is essential that you make all the payments on time. Any late payments will hurt both you and her. It's important to know that even though you are the one making the payments, the balance and the monthly payment amount will be factored into her credit scores as well as yours.
When someone agrees to share responsibility for a loan with you, they are taking a financial risk. They are putting great trust in you to be responsible in making the payments. Be sure to thank your family member for taking a chance to help you, and be certain to make sure you don't let her down in paying back the debt.
More Ways to Begin Establishing Credit
Asking a family member to cosign on a loan is great way to begin establishing credit. You may also consider opening a credit card account. Because credit cards allow the borrower the freedom to decide how much they will spend each month and how much they will repay, they are a good indicator of credit risk.
If you aren't yet able to qualify for a traditional credit card on your own, you can try:
- Opening a secured account. With a secured card, you give the bank a certain amount of money as a deposit in exchange for a credit card you can use to make purchases. If you use the account responsibly, the lender may eventually convert it to a traditional, unsecured credit card account.
- Asking a family member to add you to their account. If you have a family member or close friend with a positive credit card account, ask if they are willing to add you as an authorized user. Always check with the lender first to make sure they report authorized user accounts to the credit reporting companies.
Add Your Monthly Utility and Cell Phone Payments
Experian now offers a free tool called Experian Boost®ø that allows you to increase your credit scores instantly by including your on-time utility and cell phone payments in your credit report.
Experian Boost is especially helpful for consumers who may have a thin credit file with five or fewer credit accounts.
You can learn more about how signing up for Experian Boost can help you improve your credit scores on our blog.
Thanks for asking.
Jennifer White, Consumer Education Specialist