A bankruptcy significantly lowers a person's credit score. Over time, however, a person who claimed bankruptcy can re-establish her credit. If your co-signer recently claimed bankruptcy, she's probably not a good candidate for a loan co-signer. If your co-signer has re-established her credit, you might obtain a loan approval if the co-signer meets other lending criteria.
Recent Bankruptcy
Tara Baukus Mello of Bankrate.com warns that accounts included in a bankruptcy remain viewable to potential lenders for seven to 10 years, depending on bankruptcy type. Bankruptcy affects individual credit scores differently. Even so, a lender may take your cosigner's income and debt responsibility into consideration if you were declined for a loan because of income. If your co-signer recently claimed bankruptcy and you have poor credit yourself, obtaining a loan approval isn't likely.
Re-establishing Credit
As time passes, the impact of a bankruptcy on credit score decreases. After bankruptcy, someone can reestablish his credit by paying bills, loans and other lines of credit on time. If your co-signer has obtained his own car loan or a line of credit since the bankruptcy, his credit might have improved. If years have passed since the bankruptcy and your co-signer hasn't initiated new lines of credit to prove his ability to pay accounts on time, your co-signer hasn't re-established her credit.
Obtain a Preapproval
Apply for a loan preapproval with your co-signer before you begin shopping for a vehicle. Both you and your co-signer can submit a credit application to secure the terms of an auto loan. If your co-signer's bankruptcy still affects his credit and lending risk, your application might be declined or you might pay a high interest rate if approved. Both you and your co-signer will have to provide proof of income. Use a different co-signer if your application is declined.
Considerations
If a lender approved your loan at a higher interest rate or shorter term than your budget allows, you might be able to refinance your loan by yourself at a later date depending on why you needed a co-signer. Making loan payments on time improves your credit rating. If you were declined because of your income or debt-to-income ratio, consider refinancing when you're able to provide proof of increased income or when you lower your debt. If you plan to refinance in the future, make sure your auto loan provider doesn't charge prepayment penalty fees.
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