A Cosigner Can't Erase Someone Else's Bad Credit.
This is a common misconception. "Hello, Blue Bank, I have bad credit, but my uncle has great credit, and he's willing to cosign." So what?
While having a cosigner can certainly help in some cases, it doesn't help with credit issues. Having a cosigner can help when more income is needed to qualify for the loan or when the down payment is coming primarily from the cosigner.
But if the elephant in the room is the borrower's terrible credit, the nice uncle can't do anything about that.
It's Better to Remove an Extra Person on a Loan Application If That Person Has Bad Credit.
When you are buying with someone else and that someone else has shaky credit, you're not required to put that person on the mortgage. The mortgage is simply a note that the borrower pays back using the home as collateral.
Ownership of the property is designated by the title report. All owners of the property will appear on a document called the deed. The deed and the loan are two different things. If the borrower with good credit can get approved without using the other person's income, then take the person with bad credit off of the mortgage application altogether.
The person with bad credit will still have ownership, evidenced by his name on the deed, but he won't appear on the loan. However, if both incomes need to be used in order to qualify for a mortgage because of debt ratios, then removing the person with bad credit will lead to a declined mortgage. Taking bad credit off the mortgage will work only if the person remaining on the mortgage can afford to make the payments using current debt ratio guidelines.
Paying Off and Closing Credit Accounts Will Hurt Your Credit Score.
Those of you who have had credit for several years will probably shake your head at this. But it's true. Paying off and closing credit accounts will actually harm your credit score, not help it.
From an overall credit perspective, it makes sense to close out accounts that you don't use anymore. It makes sense to me. Why keep them if you don't need them? It's possible that someone could steal your identity and use those accounts, or you could have an old balance and not know it, or, well, it's just prudent to close them down.
But from a credit score standpoint, that's a mistake. No one knows, except Fair Isaac, of course, exactly how credit scores are calculated, and FICO plans to keep it that way to avoid abuse. But there are certain things that are known about credit scores that can provide some clues to how to improve your credit score and what constitutes a score.
The two most important factors in your score are your payment history and the amounts owed.
Your payment history shows your ability and willingness to pay your creditors back when you're supposed to; it accounts for about 35 percent of your total credit score. Each month, when you get a credit card statement, you'll see your credit limit, your balance, your minimum payment due, and the due date.
You may have a $10,000 credit card limit and owe $5,000, and your minimum monthly payment might be $125, due on the 24th of the month. All of these factors affect your credit score. If you make your payments on time, pay at least the minimum, and don't go over your credit limit, then you've just taken care of more than one-third of how your score will be figured.