Creditors often report credit accounts to the credit bureaus. The bureaus, in turn, use this data to compile individual credit reports on consumers. The Fair Isaac Company, or FICO, uses the data in your individual report to calculate your credit score. Information on your credit report can negatively or positively impact your credit. If you're a cosigner on a credit card, it's beneficial to understand if this can help increase your credit score.
FICO Scores
Your credit score runs from 300 to 850 and has five major factors. According to FICO, ten percent of the score is the type of credit mix that you have. Fifteen percent is the average length of your credit history. Thirty percent is the amount of debt that you have. Another 10 percent is the amount of credit you've recently applied for and the final 35 percent reflects how well you've paid your bills.
Credit History
An established credit card account on your credit report can help your score, even as a cosigner. FICO looks favorably on a longer credit history because it shows you've managed credit for an extended period of time. Fifteen percent of your score is the average length of your credit history, which means all of the credit accounts are added together and then divided by the number of accounts. According to FICO, generally the longer your credit history, the higher your score.
Payments
As a cosigner, any payment activity on the credit card account will appear on your credit report. On-time payments will help increase your score. Late payments on the account can severely damage your credit. According to MSN Money, one 30-day-late payment can drop your FICO score by as much as 110 points. The later the payment, the more damage it will do to your overall score.
Significance
As long as the account remains in good standing, it will positively impact your credit score. Any derogatory occurrence on the account, such as a late payment, will not only damage your score at the time the derogatory hits your report but will continue to negatively affect your credit for years to come. Under the Fair Credit Reporting Act, negative account data can remain on your credit report for up to seven years from the date it occurs. Positive payment history can remain on the report for up to 10 years.
Considerations
Keep in mind that as a cosigner, the way the primary borrower handles the credit card account will directly impact your credit score. If the primary borrower makes payments late, maxes out the card by charging up to its credit limit or goes over the credit limit, this activity will appear on your report and could damage your score. Therefore, you should consider very carefully the reliability of the person for whom you intend to cosign.
Also, since you cosigned for the debt, you agreed to be responsible for payment if the primary borrower fails to pay. The card issuer may seek payment of the debt from you. Depending upon the dollar amount, the card issuer could sue you and the primary borrower. If the card issuer obtains a judgment, this will appear on your credit report as a public record and according to FICO, it will have an adverse impact on your credit score.
0 comments:
Post a Comment