How Will a Co-Signed Loan Help My Credit?

A Credit.com reader named Scott bought a car that had mechanical problems, and he was able to return it to the dealer and buy a different car. For his loan on the second car, he was required to have a co-signer. But when he saw the paperwork, the co-signer was listed as the buyer, and Scott was listed as the co-signer. He was worried about whether being listed as a co-signer, rather than a buyer, would still help his credit score.

While the reason he was not listed as a buyer is puzzling (and it would be worthwhile for him to look into why that is), it will not affect the way the loan is viewed on his credit reports and scores. The reason for requiring a co-signer is because the borrower does not meet the lender’s requirements. So the borrower may instead find a friend or relative who does meet the requirements to guarantee, or co-sign, the loan. For the co-signer, this means taking on responsibility for this loan. And the loan will show up on the credit reports of both people listed on the loan.

So Scott needn’t worry that the loan won’t help his credit, as long as the loan is repaid as agreed. But paying as agreed is extremely important. “Whether you are the primary or secondary borrower, however, you will want to make sure you are reviewing the bill each month — and ensuring it gets paid on time,” says Gerri Detweiler, Credit.com’s director of consumer education.

If you want to see how a loan is affecting your credit, it’s good to pull a copy of your credit report. You’re entitled to a free report from each of the three credit reporting agencies every year through AnnualCreditReport.com. You can also monitor your credit scores for free using a tool like Credit.com’s Credit Report Card, which also gives you an overview of your credit.

More on Auto Loans:

• Are There Car Loans for People With Bad Credit?
• What to Do If You Can’t Make Your Car Payments
• Top 5 Worst Car Buying Mistakes

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