Cosigned a loan...have questions regarding Fico score

[Anonymous]

Hey guys,

I've searched the forums a little bit, but can't seem to find the answer I'm looking for.

Anyhow, here's my situation: I currently have a FICO score of 657 with TransUnion, and 677 with Equifax.

I cosigned a car for my cousin in March 2008.  He's never been late on payments, which is good.  The only bad thing is that with a $7500 balance being on that account, it's hurting my debt to credit ratio.

Anyway, here's my delima, and the question it brings to the table for me.  I'm wanting to purchase a new car...it will actually be the first car I've purchased.  So if my cousin refinances his loan to only his name, will this help my credit score?  I have a few credit cards (almost all paid off), but the cosigned car loan accounts for about 75% of the debt on my report.  As for my credit history, the oldest credit card in my name was opened 3yrs, 7months ago, so that should help probably.

Another question...I know it's hard to get your first car loan.  With me being the cosigner on his loan, will it stay on my report after my cousin refinances to his name, and show as account paid in full, as agreed, with a $0 balance on my report?

If so, will that help my score even more, and improve my chances of getting approved for my own loan, without a cosigner?

I'm only 21, so think I have decent credit for my age, but want to do everything I can to get that score higher and get a better rate on a car...even if I can get approved that is.  I make $35,000/year, and work fulltime.

By the way...hope this post makes since, and doesn't sound like a scrambled mess. I'm tired, so it's hard to think coherently, lol.

Thanks for your help!

-Shane 

Message Edited by CHFShane on 06-02-2009 11:55 PM

Message Edited by CHFShane on 06-02-2009 11:56 PM

[CreditBob]

With you cosign for someone, yes the car loan will show on your report. If your cousin refinances the car in his name then yes the balance on your report will reflect zero and paid. On your credit card leave a small balance on it. For example leave a $ 5-10 balance on each card. Keep your total combined utilization to about 6%. So if you have three credit cards leave a utilization on each card of 2%. For example times your credit limit by 2% and make sure that you include the interest on the account as well. If your one credit card has a limit of $ 1,000 then make sure the balance is no higher than $ 20.00 which is 2% of a $ 1,000. Make sure that before you apply for your own car loan that the balance on the cosigned loan is reporting as paid to zero on all three credit bureau reports.

On an installment loan it will affect your score a lot until 35% of the original balance has been paid down. On a original auto loan with a starting balance of $ 10,000 times that by 35% which equals $ 3,500. So the new balance can not be hirer than $ 6,500. On auto loans the interest is compounded daily. In other words interest is added to he loan each day. So keep that factor in mind as well. I know on my auto the $ 5.00 per day in interest is added tot he balance.

[smallfry]

Letting more than one third of all your open accounts report a balance however small is not a good idea. 

[haulingthescoreup]

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CreditBob wrote:

With you cosign for someone, yes the car loan will show on your report. If your cousin refinances the car in his name then yes the balance on your report will reflect zero and paid. On your credit card leave a small balance on it. For example leave a $ 5-10 balance on each card. Keep your total combined utilization to about 6%. So if you have three credit cards leave a utilization on each card of 2%. For example times your credit limit by 2% and make sure that you include the interest on the account as well. If your one credit card has a limit of $ 1,000 then make sure the balance is no higher than $ 20.00 which is 2% of a $ 1,000. Make sure that before you apply for your own car loan that the balance on the cosigned loan is reporting as paid to zero on all three credit bureau reports.

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You don't figure total util by adding individual util. Percentages don't work that way. If every credit card had 2% individual util, your total util would be 2%, not 2% * n. Also, again, you do not want to have every card reporting a balance, however tiny. Just let one report, and then pay it off. Pay the other two off (if you have used them) before they report, or you'll get dinged for "too many accounts with balances."

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On an installment loan it will affect your score a lot until 35% of the original balance has been paid down. On a original auto loan with a starting balance of $ 10,000 times that by 35% which equals $ 3,500. So the new balance can not be hirer than $ 6,500. On auto loans the interest is compounded daily. In other words interest is added to he loan each day. So keep that factor in mind as well. I know on my auto the $ 5.00 per day in interest is added tot he balance.

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It is true that there might be a small score jump when you go below 65% of the original balance, but for most of us, it won't affect your score "a lot" when it's higher than that. Once the first payment shows up and you're no longer at 100%, you'll get a hop there. Obviously, for good financial prudence, paying loans off briskly is helpful.