Piggy-backing on Someone Else's Good Credit

If you are looking for ways to repair your credit and build a positive credit history, you may consider finding someone to co-sign a loan for you.

When a person can't get credit on their own - either a credit card or a personal loan - that person will look for someone else who has good credit to co-sign on the loan. Then the person with the bad credit will be able to have a credit card or a loan. Let's take a look at the steps to take in order to accomplish this task the right way.

Step 1 - Look For a Co-signer

You first step will be to look for a good co-signer. This person should be someone knows you and is willing to take the risk of you defaulting on your payments, because if you do, it will negatively affect their credit. There has to be a mutual trust between you and the co-signer in order for it to be a harmonious relationship. In addition, this person should know up front the risks that they are taking - just in case the worst happens and you can't make the payments on the loan.

Step 2 - Always Make Payments On Time

Once you get a co-signer for your credit, always make your payments on time. It's important to note that if you make your payments before the due date, the payment won't show up as paid on time, so be sure to wait to make the payment until it's actually due. You should try and pay off the entire balance each month, rather than just paying the minimum.

You shouldn't necessarily look at this as a credit card or a loan, but rather as a step to rebuilding your credit. With this in mind, you probably shouldn't use your credit card to buy clothes or other unnecessary items, but rather to purchase small items that you know you can pay in full when the bill comes. In addition, if you are taking out a loan for the same purposes, you should consider putting the loan money in a separate account, and using it only to repay the loan as the payments come due. By doing this, you will insure that you have the money when the bills arrive.

Step 3 - Cancel the Credit After Your Credit is Re-established

After you have reestablished your credit, you should cancel the credit card or loan, and take one out in your own name. This will relieve your co-signer of any further risk, and allow you to take advantage of your new credit history.

There are pluses and minuses to this situation, and both you and your co-signer need to consider them carefully before agreeing to apply for credit. For starters, you will entirely responsible for someone else's credit report, and that's a huge responsibility. In addition, the co-signer will be taking a huge risk that their credit history could have a negative mark on it should you not pay each and every bill on time.

In short, this is a great way to rebuild your credit, but it comes with a great responsibility on your part. It's important to be sure that you can keep up with the payments so that you don't put the other person's credit report at risk.

Summary

Having a co-signer on a loan requires mutual respect
Never make a late payment on co-signed credit, it will affect your co-signer's credit as well as your own
Use a co-signed credit card only for small items that can be paid off easily
Pay off the full balance each month
Cancel the co-signed credit card as soon as your credit is re-established

Now that you've learned about one option for re-building credit, lets look at another method that you can use without a co-signer in Using a Secured Credit Card