When we apply for a new line of credit, the creditor asks for a cosigner to act as a guarantor to the loan. Mostly, the creditors need a cosigner with a good credit score to sign the loan agreement if the borrower does not have a good score to qualify for the loan. The Federal law requires the creditor to give a notice to the cosigner to inform him about his obligations towards the debt if he cosigns the loan agreement. Cosigning an agreement means that you are just letting the primary borrower use your credit history and by doing so you’re acting as a guarantor to the loan.

Just like the primary borrower, the cosigner is also fully responsible for the debt. Now if the primary borrower somehow fails to repay the debt on time, either due to loss of job or otherwise, the cosigner will be required to pay back the entire debt to the creditor. Even if the primary borrower dies, the cosigner remains responsible for the debt. Another important thing is that, this loan account will appear on the credit report of both the primary borrower and the cosigner. If the creditor does not get the money back from the primary borrower, he will notify the cosigner and will ask him to make the payment.

Now, since the cosigner credit account appears on your credit report and forms a part of your credit history, your FICO score gets affected if the account becomes delinquent. Moreover, due to non payment of the cosigned account, both your debt to income ratio and the balance to limit ratio will rise and your application for a new line of credit may get rejected.

You should therefore cosign a loan agreement only if you can afford to repay it back. Moreover, before cosigning an agreement, you should first understand the purpose of the loan and go through the terms and conditions to check whether you can afford to abide by the conditions. However, there are certain instances where cosigning the loan agreement becomes necessary. For example, you may need to cosign an education loan for your son or daughter. But even in such cases you should try to limit your obligation towards the loan only to the principle amount, by negotiating with the creditor.

Bankruptcy is a legal process which helps you to manage your debts effectively under the cover of the bankruptcy court and helps you to make a fresh start on your finances. Once you file bankruptcy, all foreclosures, repossession and garnishment orders cease to operate temporarily. Generally, there are two types of bankruptcies which are filed by individuals. They are Chapter 7 bankruptcy and Chapter 13 bankruptcy. However, if you have a discharged Chapter 7 bankruptcy within the last 8 years or a discharged Chapter 13 bankruptcy within the last 6 years you cannot file bankruptcy. Moreover, you cannot file bankruptcy if your bankruptcy petition has been dismissed within the last 180 days.

Under the new bankruptcy law of 2005, you need to go through a credit counseling program if you want to file bankruptcy and submit a certificate to the bankruptcy court in this regard within a period of 15 days of filing bankruptcy. The bankruptcy court may dismiss your bankruptcy petition if it is proved that you have illegally transferred your property to your friends and relatives and have tried to conceal your assets to qualify yourself for Chapter 7 bankruptcy. Moreover, if before filing bankruptcy if make excessive spending on your credit cards with the hope that these credit card debts will be included under Chapter 7 and you need not pay them off, then your bankruptcy petition may be dismissed.

Chapter 7 bankruptcy, also known as “straight” or “liquidation” bankruptcy is preferred by most debtors because under this bankruptcy, the Bankruptcy court discharges all the debts. A portion of your property may be sold off by the Bankruptcy Court under Chapter 7 to pay off some of your outstanding debts. Some of the properties which can be sold under Chapter 7 include expensive musical instruments, cash and other investments, a second car or home, and collection of stamps and other valuable items. Hence a debtor can file Chapter 7 bankruptcy if he has nothing to lose to the bankruptcy court. The debtor can also eliminate some of his secured debts by filing bankruptcy under Chapter 7.

Under Chapter 13 bankruptcy, you need to pay back the outstanding debts to the creditors under the cover of the bankruptcy court through a repayment plan and so Chapter 13 bankruptcy is also known as “debt adjustment” bankruptcy. Instead of handing over the assets as in the case of Chapter 7, you need to pay off the debt within 3 to 5 years.

Credit repair scams have almost become a regular feature. Everyday we find that credit repair companies claim that they will clear up your credit report and remove all negative items including bankruptcies and judgments for a fee, but they cannot deliver the desired results and end up taking huge fees. This is because nobody can remove negative information from your credit report if it is correct and so even after you pay hundreds of dollars to the credit repair companies, your credit report remains as it was before you have signed up for credit repair. It is not at all difficult to identify whether a credit repair agency is a scam or not. If you find that a company demands fees to repair your credit even before they provide any service then you should not go for that repair agency because as per the Credit Repair Organization Act, you are not required to pay any fees to the credit repair agency until and unless you get the result as promised. Moreover, the credit repair company must inform you of your rights under the Fair Credit Reporting Act and that they should also inform you can also repair your own credit if you want.

Federal Trade Commission also recommends you to repair your own credit. Doing this not only helps you save money, but also help you learn the basics of credit industry and the ways to maintain a good credit profile. Repairing your own credit is not at all a difficult task and you need to have patience to do so. You can follow the below mentioned steps if you want to repair your own credit:

1. Pull out your credit report and find out the negative items there. Negative items such as judgment, charge off accounts and bankruptcies can never be removed from your credit report before the seven year period. However, there are certain other listings such as hard inquiry and outstanding delinquent accounts which can be removed if you pay them off.
2. Hard inquiries can stay in your credit report only if it has been authorized by you and it can remain there for two years. However, if you have not authorized the hard inquiry, you should send a letter to the inquirer asking him either to verify your authorization or to remove it from your credit report. You may even threaten them that you may file a complaint with the State Banking Commission if they fail to remove it from your report. In most cases, the inquirer removes the hard inquiry from your report if they cannot verify your authorization.
3. Now, if there is an outstanding debt listing in your credit report and the debt has been send to collections, you should always send a debt validation letter to the collection agency by certified mail to check whether you owe the debt or not. If the collection agency properly validates the debt, you should try to pay it off by coming to a repayment agreement. However, before coming to a repayment plan, you should always try to negotiate with the creditor for a pay for deletion agreement so that as soon as you pay off the debt, the negative items gets removed from your credit report and your credit score improves. However, even if the creditor does not agree to the pay for deletion agreement, you should try and pay off the debt to avoid judgment, which the creditor might bring at a later date. If the creditor does not agree to pay for deletion agreement and you pay off the debt in full, the debt will be listed in your report as “paid in full”. Although this “paid in full” listing is also negative, it is always better than an unpaid debt. If the collection agency cannot validate the debt, you should dispute the listing with the credit bureaus. The credit bureaus will get it verified and remove the item from your report.