Dear Dr. Don,
Can anyone be a loan co-signer? Do they have to be a certain age? Do they have to have a full-time job? When can people get a loan on their own without a co-signer?
-- Brigitte Budget
A co-signer is typically a family member or friend. If a lender is unwilling to loan the funds to the borrower based on the borrower's income and credit history, the lender may suggest that a co-signer would help in the credit approval process. Or, the borrower can suggest it to the lender.
Under provisions of the Credit Card Accountability, Responsibility and Disclosure, or CARD, Act of 2009, consumers under age 21 who can't prove an independent means of income -- or provide the signature of a co-signer aged 21 or older -- won't get approved for credit cards other than as authorized users on their parents' accounts. (Most of the act's provisions are effective Feb. 22, 2010.) This act brings up the age of the co-signer.
A credit score is based on your credit history. Lenders use your credit score to estimate how likely the loan will be repaid. Young adults typically don't have much of a credit history, so the lender looks to a co-signer to guarantee the credit. The co-signer has to have a good enough credit score to qualify for the loan. The co-signer's income will also figure into the lender's decision.
If the primary borrower doesn't repay the loan, the co-signer is responsible for the payments. The process is explained in greater detail in the FTC's Facts for Consumers publication "Co-signing a Loan." I get a fair number of letters from co-signers asking how they can get their name off the loan, and get off the hook for payments. Short of paying off (or refinancing) the loan, the co-signer can't take back his or her signature.
A secured card can be a realistic option for building credit without a co-signer. The Bankrate feature "How do I ... Get secured credit cards?" can help you decide if a secured card is right for you.
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