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The Risks Of Co-signing for a Bad Credit Loan
Lenders who offer bad credit loans usually require the applicant to have a co-signer. Many people who have imperfect credit history ask their friends or relatives to help them get their loans approved by co-signing the contract.
Have you been asked to co-sign for someone? If yes, have you considered the possible risks involved with being a co-signer? Are you clear about what your duties and responsibilities would be as a co-signer? What can you to protect yourself as co-signer? In this article, lets answer these questions one at a time.
Possible Risks Associated with Co-signing Co-signing a loan for another person means that you guarantee that he/she is capable of the loans repayment. With this assurance, you agree to take over the repayment obligations in the event that the primary loan holder defaults.
Unfortunately some people immediately sign-up the contract without first reviewing the Terms and Conditions or without a clear arrangement with the primary loan holder. Take note that as a co-signer, your personal credit history can be damaged in case there are problems with the loan holders repayment.
Some lending companies will only try to get in touch with the co-signer after the primary loan holder defaults. However, the damage has already been done to your own credit. You may also be taken by surprise that you are now accountable for the loan holders debts.
Some co-signers also found themselves in the middle of a messy situation. By the time you need to apply for your own loan, you may find it difficult to get an approval. Lenders may see you as a “risky” client because you are already responsible for another loan. Although, it isnt directly under your name, you are still responsible for its repayment in case of default.
On the other hand, if the lender feels that you are still capable of taking on a new loan, you may get an approval. However, if your credit rating has been pulled down due to someone elses late payments, you may not qualify for the best rates from your lender.
Thus, the best advice to remember before co-signing a loan is to treat it as if its your own. If you are not sure whether you can keep up with its repayment, then it would be safer not to co-sign the loan.
Co-signer How to Protect Your Own Credit If you are willing to co-sign, the best way you can protect your personal credit and reputation is to closely monitor the primary loan holders payments. Request the lending company to send you a copy of the monthly notices or updates so you can be immediately made aware if the loan holder falls late with the payment.
Evaluate the Terms and Conditions with the loan holder. Make sure that the person you are co-signing for is clearly aware of his/her obligations. If you have any concern, dont be afraid to discuss the matter with your friend. Make an agreement with your friend and ask him/her to talk to you about anything that concerns the repayment. After all, it is your credit and finances that is also on the line.
What is a bad credit loan? (Page 1 of 2)
Bad Credit Loans
A bad credit loan is a type of loan that is offered to individuals that have poor credit.
How do you know if you have bad credit?
First, before you apply for a loan, you should write the credit bureau to get a copy of your credit report.
How can you tell if you have bad credit?
If you are receiving calls from a collection agency, you have bad credit.
You have bad credit if you have three or more late payments on your credit report.
But there is more!
You also have bad credit if you have any of the following on your credit report:
Unpaid closed accounts. This could be credit cards, auto loans, home loans, apartment lease, cellular phone, cable bills and much more.
Any account that is closed and was not paid off will show a charge off on your credit report.
This is one of the worst items that you can have on your credit report. It tells the person that checks your credit that you will never pay off the bill.
You can also get bad credit by co-signing for another person.
For example, you could co-sign for a person to get a new car, loan or apartment. If the person you co-signed with is ever late of a payment, that would cause you to have bad credit.
How To Clean Up A Bad Credit Report
If you would like to clean up or repair your credit, your first step is to order your credit report.
Once you have received your report, you should either pay off any unpaid bills on your report or contact the account holders to make some type of payment arrangement.
It is always better to pay the bill off if possible. If you owe a large amount of money, you may want to contact a debt consolidation service.
For a small fee, they would contact each account holder to work out a payment plan that you could afford.
They would combine all of your bills into one monthly payment. This service would improve your credit history over time.
If all of your accounts are paid off and still show a history of late payments, you could hire a credit restoration service. Credit restoration or credit repair companies can contact the credit bureau to try to get them to remove the late payments from your credit report.
These types of services can only help you to clean up your credit history if you have already paid off your accounts. The reason why your account must be paid off for a credit repair company can be able to help you, is because the credit repair service will send a letter to the credit bureau requesting to have all the negative items removed from your credit report.
The credit bureau will send all your account holders a letter stating that you would like to remove the negative information that they sent to the credit bureau about your account. If your account holder does not respond to the credit bureau’s letter, the credit bureau would have to remove the information from your credit report. There is a much better chance that the account holder will not respond to the credit bureau if your accounts are closed and paid off. If your accounts are not paid off, the account holder knows if they respond to the credit bureau, the negative items will stay on your credit report.