Who Gets Credit on a Loan with a Cosigner? (2024)

FAQs

Who Gets Credit on a Loan with a Cosigner? ›

Having a co-signer on the loan will help the primary borrower build their credit score (as long as they continue to make on-time payments). It could also help the co-signer build their credit score and credit history, if the primary borrower makes on-time payments throughout the course of the loan.

If a borrower has low credit scores or little to no credit history, adding a co-signer to their loan application may give them a better chance of being approved by the lender. Co-signers agree to be held legally responsible for a debt should the primary borrower fall behind on what they owe.

Being a co-signer itself does not affect your credit score. Your score may, however, be negatively affected if the main account holder misses payments.

While having a co-signer does not guarantee you will be approved, if they have a high credit score and good credit history, lenders are far more likely to trust you as a borrower.

Here's how being a co-signer can build your credit: As long as payments are made on time, it adds to your payment history. However, if you have a high score and well-established credit, the effect may be small compared with the danger to your score if the borrower doesn't pay.

Adding a co-borrower or a co-signer can improve your approval odds when applying for a loan and help you secure better terms. Co-signers back the loan but don't have access to the funds, whereas co-borrowers can access the borrowed funds.

Lenders determine what's called the "lower middle score" and usually look at each applicant's middle score. For example, say your credit scores from the three credit bureaus are 723, 716 and 699, and your partners are 688, 657 and 649. Lenders will then use the lower of the two middle scores, which is 657.

You don't meet the income requirements

The lender will only consider your income when determining whether you meet the requirements. Your co-signer's income will not factor into this part of the application. So, a co-signer with bad credit but good income won't help with approval or better rates.

The minimum credit score for a mortgage with a co-signer is 580 for an FHA or VA loan. Although there might not be a required credit score, a cosigner needs credit in a good range which is determined by the overall credit profile.

Some of the easiest loans to get approved for if you have bad credit include payday loans, no-credit-check loans, and pawnshop loans. Personal loans with essentially no approval requirements typically charge the highest interest rates and loan fees.

Why would a cosigner be denied? ›

Sometimes lenders will deny a loan if the person has too much debt. Cosigning on student loans, a car loan, or a mortgage could add a significant amount of debt for the cosigner. If the cosigner thinks that they will need to apply for a large loan soon after cosigning, the cosigner could be denied.

When you cosign a loan, you agree to be responsible for someone else's debt. If the main borrower misses payments, you must make the payments. If the main borrower misses payments or stops making payments (also called defaulting), you must repay the loan.

Each auto lender has its own credit requirements, but typically a cosigner needs a credit score of 670 or more. Lenders also calculate the cosigner's debt-to-income ratio (DTI), which measures how much of their income goes to pay debt.

However, cosigning a loan comes with several risks. The cosigner is legally responsible for the debt if the primary borrower can't make payments. Any late or missed payments can negatively impact both parties' credit scores. Furthermore, the cosigner doesn't have any ownership of the vehicle.

That cosigner must have good credit because their credit gets run to make sure that they are in good standing. Only if they are deemed acceptable can someone with bad credit get their loan. The process is not reversible. You cannot switch the process around and have the person with bad credit try and cosign the loan.

An excellent credit score is best, but try to aim for at least good credit or above (so a score of 670 or higher). Steady income: Your cosigner has to make monthly payments on the loan if you can't. For this reason, your lender will want to see that your cosigner has steady (and sufficient) income.