Building your credit is an important part of financial stability. Most people don’t know much about credit scores, though. It takes time and a great deal of patience to build great credit.
One way to get a jump start on the process is to let your family help. Whether your credit file is empty because you’ve never used credit cards or haven’t had a loan recently, or you want to rebuild your credit after past financial problems, there are a few things your family can do to support your efforts.
Cosign your loan
If you need a loan but don’t qualify on your own, having a family member co-sign is a great way to secure a loan. Even if you’ve been turned down, you may still qualify if your co-signer has a favorable credit history.
When you add a co-signer to your loan application, you become less of a risk to the lender. The loan will appear on both your credit report and on your cosigner’s credit report, so making every payment on time and in full is important for both of you.
When you add a cosigner to your loan application and get approved, that person offers their personal guarantee that you’ll pay the loan back as agreed. If you fail to do so, the lender has a legal right to pursue payment from your co-signer.
Add you as an authorized user
If a family member with great credit is the primary owner of a credit card account, they can add you as an authorized user. This action on their part causes the credit card company to add the entire payment history of the account to your credit report.
Before you are added as an authorized user on anyone’s credit card account, make sure it will actually help your score. Accounts that have the most potential to boost your credit score have these things in common:
- The balance on the card is usually less than 1/3 of the total available credit
- Every payment has been made on time for at least the past two years
- The account is more than two years old
Cosign your credit card application
Maybe you don’t qualify for an unsecured credit card because your credit file is too thin or you have had financial difficulties in the past. If so, asking a family member with great credit to co-sign your credit card application is one way to help you build a better credit score.
Don’t open a credit card with a co-signer unless you know you can be responsible with the card, though. Missed payments or charging more than 30% of the card’s total credit limit will hurt your cosigner's credit score in the same way that it will hurt your credit score.
If you decide to ask a family member for help building your credit score, make sure they really feel comfortable doing so. Work with a qualified lender, and don’t take on financial responsibilities that are outside of your comfort zone.