Co-signers act as guarantors on loans, meaning they are willing to take full responsibility for the loan if the primary borrower fails to pay. Co-signers are often necessary for people who have poor credit or are establishing credit for the first time. Qualifying as a co-signer is not easy. Co-signers are expected to have excellent credit, making it unlikely someone recovering from bankruptcy would qualify. Years of credit rehabilitation are usually necessary to fully rebuild credit after a bankruptcy.
People with credit scores of 720 are higher are typical candidates to become co-signers. Privacy Rights Clearinghouse, a national nonprofit consumer information company, reports that credit scores of 720 to 750 represent superb credit. Few people with bankruptcy information on their credit report have scores in that range. It takes two to three years after bankruptcy to build a credit score in the 700s, according to Bankrate. People needing co-signers sometimes have credit scores lower than 620, which is the baseline for good credit.
Bankruptcy information remains on credit reports for 10 years, with reports checked when applying to become a co-signer. So-called credit repair firms advertise they can remove negative credit information, but the Federal Trade Commission reports there is no legal or ethical way to remove bankruptcy information until it expires.
A person recovering from bankruptcy arguably should not co-sign for a loan even if a lender allows it. A default by the primary borrower could trigger a new round of financial problems, including hassle from debt collectors or even a lawsuit. As a bankruptcy filer, you are better served focusing on your own credit rehabilitation rather than co-signing for someone else.
Consider using your bankruptcy experience to mentor the potential borrower. Talking with the friend about the perils of debt won't result in a loan but could start him thinking about other ways to solve his credit issues, including delaying the purchase while saving enough to pay cash or by seeking to borrower a smaller amount and possibly qualifying for the loan on his own. Also, the friend could work on improving his credit score and applying for a loan at a later time.