A bankruptcy affects your credit score negatively, but you are not stuck with the bad credit score forever. After a bankruptcy, reestablish credit in your name to build a positive credit history that will increase your credit score over time. If you are having trouble finding a lender to finance a car loan for you, getting a cosigner can help you qualify for the loan.
Cosigners and Credit Reports
A cosigner is somebody who applies for the loan with you and signs all of the loan documents with you. The cosigner legally has as much responsibility to repay the loan as you do, even if you are planning to make all of the payments on your own. The car loan and all of the payment history will appear both on your credit report and on your cosigner's credit report. The loan influences your score just as much as a car loan without a cosigner would.
Benefits of Having a Cosigner
If your cosigner has a better credit score than you do, this can help you secure the best possible car loan. Lenders will often reject car loan applications from people who have a recent bankruptcy, and if they do accept the application, they will charge a very high interest rate. Applying with a cosigner increases your chance of approval because the lender takes the cosigner's positive credit history into account. In addition, you will probably get a lower interest rate with the cosigner than you would without.
Making Payments
Because your payment history makes up about 35 percent of your credit score, focus on making every car loan payment on time to build credit. If you are not going to be able to make a payment, contact your cosigner before the payment is due. Because the late payment will also damage the cosigner's credit, this person might be willing to give you money so you can make the payment on time.
Considerations
A year or two after you first got your car loan, you might have improved your credit score enough to qualify for a car loan with a decent interest rate on your own. In this situation, contact your lender and ask the lender to release the cosigner from the obligation. Another option is to apply for a refinanced car loan with a credit union on your own.
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