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So you’ve just applied for a new apartment, but the leasing office tells you that you’ll be needing a cosigner in order to sign your lease and move in. Why is this happening? Let’s explore the ins and outs of having a cosigner.
A cosigner is a person who has agreed to take responsibility for your payments in the event that you default on a loan or do not pay your rent. Your cosigner will then be legally liable for making these payments, and not doing so could cause long-term damage to their credit as well. Since banks and landlords know these people are financially responsible, they will accept cosigners to ensure they are paid.
But, why might you need a cosigner?
When you apply for a loan, apartment, or mortgage, the lender or landlord takes two major factors into account: your income and your credit report.
If your reported income or credit score are below a set threshold, a lender or landlord will usually require you to find a cosigner. This provides them with peace of mind about lending you money or allowing you to move into one of their properties, because it lowers the risk of default.
Pretty much anyone in good credit standing can be your cosigner, but you should be careful who you ask. Family members are usually a good place to start, especially for young adults who wish to take out private education loans or move into their first apartments. Be warned, however, that defaulting on a loan can cause irreparable damage to your relationship with your cosigner.
There are two things to consider before asking someone to cosign on a loan for you:
If you can wait to take out your line of credit or move into that apartment, take some time to repair your credit. Here are some ways to do so in a short period of time:
If you do end up asking someone to cosign on a loan or apartment for you, there will come a day when you can release them. Each lender or landlord will have different requirements for releasing a cosigner, but it can usually be done after a period of time, provided your account has remained in good standing, and your payments are all made in-full and on time.
When you sign the paperwork for your loan or lease, there may be a provision for dropping the cosigner, which you should do as soon as possible. If there is no provision, ask your lender about it. If they cannot allow you to drop the cosigner, and that’s something that is important to you, you may need to find a new lender or explore eventual refinancing options down the road.
So, when you are ready to apply for a loan or new apartment, and you need a cosigner, you now have a better idea of what that means, both for you and for the person agreeing to be held legally responsible for your outstanding debt.
For more information about repairing your credit to avoid having to ask someone you love to be a cosigner, visit www.credit.com, where you can also get a free credit report.
If you’re concerned about your credit, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get a free credit score updated every 14 days.
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Mortgages
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