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Understanding Cosigners: How They Can Help You Secure a Loan

When a loan or credit line seems out of reach, adding a cosigner might give your application just enough of a lift to gain approval. A cosigner is a person who agrees to cover your missed payments or debt if you don’t pay according to your loan agreement. A cosigner adds their good credit and income to your application, which can make you more appealing as a borrower.

What Is a Cosigner?

A cosigner on a loan or credit application takes responsibility for your debt if you are unable to pay. A cosigner agrees to cover missed payments—and potentially your entire debt—if you fail to make payments or default on your loan. If you’re having difficulty qualifying for a loan or credit card, adding a cosigner may strengthen your application. A cosigner acts as a backup and removes some of the risk when lenders are considering a borrower with bad or no credit, or with too little income to qualify for a loan on their own.

When Do You Need a Cosigner?

You might consider a cosigner when your credit, income, and assets don’t qualify you for a car loan, student loan, mortgage, or personal loan. Here are a few scenarios where a cosigner might help:

• Poor Credit or No Credit: If you recently graduated from college and need a car to commute to a new job, having a parent with good credit cosign could help you qualify for the car loan you need.
• Additional Income: If you and your spouse want to buy a home but your combined incomes don’t quite meet the debt-to-income requirements, adding a cosigner with substantial income may help you nudge your application into approval territory.

Does a Cosigner Need Good Credit?

Ideally, a cosigner should have good to exceptional credit, with a credit score of 670 or better. Each lender will have its own income and credit requirements for cosigners. Essentially, lenders expect cosigners to qualify for the loan or credit line in question. Even when lenders don’t have a minimum required score, a cosigner should have a strong credit history, especially if the original borrower’s credit is lacking.

Cosigner Requirements

Check with your lender first to find out about cosigner requirements. Knowing them helps you and your cosigner prepare the information and documents you’ll need to complete your application. In general, expect to cover the following bases:

• Credit Requirements: Your lender will check your cosigner’s credit report and credit score. Your cosigner will need to provide their full name, address, and Social Security number so the lender can pull their credit.
• Income Requirements: In addition to having a good-to-excellent credit score, your potential cosigner will need to show that they have enough income to pay back the loan if you default on it.
• Signing Requirements: 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 such as government-issued identification, Social Security card, proof of income, proof of assets, and 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 alternatives:

• Look for a New Lender: Different lenders have different underwriting criteria. If you aren’t having luck with one lender, you may want to check with others. Online lenders and credit unions are two places to start.
• Consider a Secured Loan: If you’re having trouble getting approved for an unsecured personal loan or credit line, a loan secured by an asset might be worth investigating.
• Get a Secured Credit Card: If a prospective credit card doesn’t allow cosigners and you can’t qualify on your own, consider a secured credit card that requires a cash deposit equal to your credit line.
• Adjust Your Sights: Failing to qualify for a loan may be a sign that your loan isn’t affordable (or advisable) for you. If you can, consider a smaller loan.
• 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.

The Bottom Line

The ability to qualify for loans is one of the best reasons to build good credit and maintain a solid income. 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 credit 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.

For any mortgage service needs, contact O1ne Mortgage at 213-732-3074. Our team of experts is here to help you navigate the complexities of securing a loan and finding the best mortgage solutions tailored to your needs.

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