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Adding a cosigner to your application may help you secure a new loan or credit card. A cosigner is a person who agrees to cover your missed payments or debt if you don't pay according to your loan agreement. Since a cosigner backs up your application with their good credit and income, lenders view you as less of a risk and may be more likely to grant approval or better terms on credit.
Although requirements vary, a cosigner typically needs good to excellent credit (670 and up) to cosign a loan or credit line. Here are a few requirements to consider if you want to add a cosigner to help boost your loan or credit card application.
What Credit Score Does a Cosigner Need?
A cosigner should have good to exceptional credit, which is a minimum FICO® Score☉ Θ of 670 or better. It's better still to have a FICO® Score of 700 or above. Every lender has its own credit requirements for cosigners, based on their underwriting criteria and the type of loan you're considering. In general, the higher the scores, the better.
Overall, lenders are looking for cosigners who qualify for the loan or credit line in question. A cosigner with high credit scores, healthy income and a strong credit history can help bolster a marginal application, especially if the borrower's credit is lacking.
Learn more: What Is a Good Credit Score?
Asking your cosigner to check their credit in advance can help you avoid surprises. Anyone can check their own credit reports at all three credit reporting agencies for free at AnnualCreditReport.com. Experian also allows you to check your FICO® Score for free online anytime.
Other Cosigner Requirements
In addition to having good to excellent credit, cosigners should be prepared to meet lender income requirements. They should also be ready to sign loan or credit application documents, if necessary. Here's more on what that entails.
Income Requirements
Potential cosigners need to show that they have enough income to pay back a loan if the borrower defaults on it. To assess a potential cosigner's income, the lender will likely calculate their debt-to-income ratio (DTI), which compares their total monthly debt payments with their earnings.
You (and your potential cosigner) can estimate DTI by adding up all monthly bills, including the new loan payment the cosigner would be liable for in the event you default, and dividing that amount by their monthly pretax income. Lenders typically like to see a DTI of less than 50%, including payments on the cosigned loan.
Learn more: How to Reduce DTI Before Applying for a Loan
Signing Requirements
On a more logistical note, your cosigner must be available to sign application documents according to the lender's requirements: in person with a notary, or by e-signing. They may also need to provide documents, which could include the following:
- Government-issued identification
- Social Security card
- Proof of income
- Proof of assets
- A list of debts
Alternatives to Cosigners
If you can't find the right person to cosign your loan—or your lender doesn't allow cosigners—you still have options.
- Look for another lender. Different lenders have different underwriting criteria. If you want to explore your alternatives, online lenders and credit unions are two places to start. If you're trying to get a home loan, a government-backed loan from the Federal Housing Administration (FHA) or Department of Veterans Affairs (VA) might help you qualify with lower credit scores.
- Consider a secured loan. A loan secured by an asset can help you get approved for a loan or credit line that's slightly out of your reach. Collateralized loans allow you to use an asset such as a savings account to secure your loan. Asset-backed loans may be easier to qualify for and may have more favorable rates as well.
- Get a secured credit card. A secured credit card requires a cash deposit usually equal to your credit line: For example, you might deposit $500 to get a $500 credit limit. You build credit as you use the card and make payments; no cosigner needed.
- Apply for a smaller loan. Failing to qualify may be a sign that your loan isn't affordable (or advisable) for you. If you can, consider a smaller loan. Two ways to get there: Increase your down payment or find a less expensive car or home.
- Try again later. Sometimes, taking six months or a year to build your credit and save a bit more for a down payment can make the difference between loan approval and denial. If you're lucky, maybe you'll get a raise that can help you meet income requirements as well.
Frequently Asked Questions
When Is a Cosigner Needed?
Consider a cosigner when your credit and income don't qualify you for a car loan, student loan, mortgage or personal loan. Here are a few instances where a cosigner might help.
- You have poor credit or no credit. You recently graduated from college and need a car to commute to a new job. Because you don't have much experience with credit, your credit scores are low and your credit history is slim. Having a parent with good credit cosign could help you qualify for the car loan you need.
- You need additional income to qualify for a loan. You and your spouse want to buy a home, but your combined incomes don't quite meet the DTI requirements. Adding a cosigner with substantial income may help you nudge your application into approval territory. The lender may also consider a cosigner's assets when evaluating your loan.
How Does Being a Cosigner Affect Your Credit?
Acting as a cosigner can affect your credit in multiple ways. To start, lenders will run hard credit inquiries and review your credit scores and report. The cosigned loan will appear as debt on your credit report, which could affect your ability to qualify for loans and credit in the future. Late payments, if they happen, can also have a negative effect on your credit.
Cosigners agree to cover missed payments—and potentially the entire debt—if the borrower fails to make payments or defaults on the loan. By staking your good name (and good credit) on the borrower's ability to repay, you're taking a chance on them. Most often, cosigners are family members or close friends—people who trust the person they're cosigning for and who have an interest in seeing them succeed.
Learn more: Alternatives to Cosigning a Loan
The Bottom Line
If your loan application needs a little help from a cosigner, look for a family member or close friend who has very good to excellent credit and ample income. Also look for a cosigner with whom you have mutual trust, then live up to that trust by repaying your loan on time and without a hitch until it's paid off—or until you can refinance on your own without the aid of a cosigner.
If you want help building good credit, consider free credit monitoring from Experian. You'll get online access to your FICO® Score and Experian credit report any time and receive alerts whenever there are changes to your credit file, so you can keep up with your own progress.