People buying a home sometimes use a co-signer on the mortgage. A co-signer is a person who agrees to be responsible for the debt in the same manner the owner is liable, though the co-signer isn't always entitled to own or use the home. Using a mortgage co-signer may affect your chances to obtain a home loan, or the interest rates offered, though the co-signer doesn't directly influence your credit score.
Credit Score
Each person's past history with using credit gets reported on that person's credit report. Credit score companies then use this information to determine the person's credit score, a numerical representation of their past credit history. Though credit scoring companies use different factors to determine the score, they typically use five key factors in the calculation: payment history, amount of outstanding credit, average length of credit lines, number of new credit lines and the types of open credit lines.
Co-signers
A co-signer on a loan, be it a home loan or any other, is someone who signs on and guarantees to the lender that should the loan signer fail to make the loan payment the co-signer will. A co-signer, therefore, is simply added security for a lender. Co-signing a loan doesn't directly impact the original borrowers credit score, though it can indirectly impact it.
Indirect Effects
If a borrower uses a co-signer to secure a home loan, being approved for the loan will impact the borrower's credit score. In general, acquiring more credit tends to lower a score initially. However, as the borrower makes regular payments and proves she is able to repay the loan on time, her credit score typically increases. A co-signed mortgage, therefore, may lead to an initial score decrease but can lead to a later increase.
Subsequent Acts
Like any loan, a home loan with a co-signer can lead to a credit decrease in some situations. A single late payment, according to Yahoo Finance, can lower a credit score between 60 and 110 points. If you and the co-signer are unable to make the payments and the lender forecloses on the home, this can lower your credit score between 85 and 160 points.
0 comments:
Post a Comment