A credit score is like your financial health. If it is good, you will be offered loans at lowered interest rates and vice versa.
If one borrower has a very good credit history and the other has a bad credit history, the impact on their credit score can be more
A credit score is like your financial health. If it is good, you will be offered loans at lowered interest rates and vice versa.
Taking a joint loan can offer several benefits. In this case, the lender will pull up the credit histories of both parties and work on a combined credit score. A joint loan can offer benefits like lower interest rates and also higher borrowing power if both the co-lenders have a good credit score. However, it is important to understand how a joint loan can affect your credit score.
How A Joint Loan Can Affect Your Credit Score A joint loan could certainly have an impact on your credit score. But the extent of the impact depends on your credit habits. If your credit habit is good, it will have a positive impact on your credit score and if it’s bad, there will be a negative impact. There could be other factors that could affect your credit score in the case of a joint loan.
Weighting Of The loan: The lender may put more onus on the joint loan more heavily in your credit score calculation in case your credit history is limited or the loan amount is large.
Individual Credit Histories: If one borrower has a very good credit history and the other has a bad credit history, the impact on their credit score can be greater.
How To Minimize Negative Impact on Your Credit Score Remember, to avoid any negative impact on your joint account needs to be managed responsibly, wherein timely payments are made. You must have a positive payment history. You must keep the debt on your joint account low relative to the credit limit which could help reduce your credit utilisation ratio. “You and your co-borrower must understand the full liability of the loan. You must monitor your credit report for errors and rectify them as soon as possible. You must avoid applying to multiple lenders within a short period of time while opting for a loan,” says AK Narayanan, CEO, AK Narayan Associates, a financial planning firm. Remember when taking a joint loan, especially a big loan like a mortgage it is important to communicate regularly with your client and discuss financial matters openly with your co-borrower.