search facebook-square linkedin-square twitter envelope android-arrow-forward

If you’ve ever needed to take out a loan, you know your credit score is the biggest determining factor in qualifying. But what happens if you don’t have a good credit score?

When applying for a loan on your own, you risk getting denied due to poor credit. You could find a couple lenders that will work with you, but many see a low credit score as risky and only offer higher rates. If you’re running into that issue, you might want to find a cosigner.

In this post:

What is a cosigner?

A cosigner is a person who agrees to sign onto your loan with you which can allow you to qualify for a loan you wouldn’t otherwise qualify for (and potentially get a lower interest rate than you would qualify for on your own).

Although not all lenders allow cosigners, you can usually apply with one on many types of loans, including:

  • Private student loans
  • Student loan refinancing
  • Personal loans
  • Mortgages
  • Auto loans

How to find a cosigner

Finding someone that trusts you enough with their credit is a big deal — and shouldn’t be taken lightly. A cosigner agrees to repay your loan in the event you don’t, so they should be someone you trust and who trusts you — like a parent, close friend, spouse, sibling, or other relative.

It’s important to prepare before you even ask someone to be your cosigner. Here are a few things you can do:

  • Have a plan. Know how you’re going to handle your loan once it gets approved with your cosigner’s help. You and your cosigner should have a plan in place for when you’ll make payments and what happens in case you can’t make payments on time.
  • Use teamwork. Go through the loan process together so your cosigner has an understanding of everything it entails. It also helps you to have someone to talk about it with in case you’re unsure of how something works.
  • Know the risks. While you’re using their good credit score to help you qualify for a loan, there are some risks involved. For example, if you don’t pay your loan back on time, your credit score will take a hit and so will your cosigner’s.
  • Be open and honest. Don’t shy away from talking about the risks involved with being a cosigner and what happens if you don’t follow through with payments. Also, don’t be afraid to talk about your current financial state, what you earn, and how you’re trying to improve your finances and credit.

Why get a cosigner?

Having bad credit can be a dealbreaker with lenders. They equate bad credit with irresponsible credit use. Whether you haven’t done well managing other forms of credit in the past, or you have a sparse credit history, a low score can have a negative impact.

You may need a cosigner when you’re applying for private student loans. If you’ve exhausted all your federal funding options, like grants, scholarships, and federal student loans, you might turn to private student loans to fill in some gaps. While federal student loans don’t check credit scores for federal loans (except PLUS loans), private student loans require it.

If you’re a first-time college student then you’re probably new to borrowing money. This means you might not have a strong credit history — or any credit history at all — to prove your creditworthiness. Which means you’ll need to enlist the help of a cosigner.

In fact, 92.3% of private student loans are cosigned. This shows that many student loan borrowers rely on the help of those with more established credit profiles to secure borrowing money for school. Plus, even if you can qualify without one, a cosigner can help you secure a lower interest rate than you could get on your own. And that could save you money over the life of your loan.

Check Out: The Best Private Student Loan Companies

What to do if you can’t get a cosigner

Even though having a cosigner could make or break your loan approval, not everyone has the option of getting one (and not every lender allows it).

If you don’t have access to a cosigner, you should take time to build your credit. Here’s how to get started:

  • Make payments on time. If you have loans and credit cards, start making at least the minimum monthly payments on time. Payment history is your biggest factor in boosting your credit score, and on-time payments can drastically help. The more you can pay each month, the better.
  • Lower your credit usage. If you have credit cards, try to use them as little as possible and work on paying them off in full every month. The amount you owe is also a big determining factor in your credit score.
  • Become an authorized user. If you don’t have anyone that will be your cosigner, see if you can become an authorized user on a credit card account. You don’t need to use the card to boost your score; you simply reap the benefits of their great score.

If you’re struggling to make payments on your student loans right now, think about refinancing your student loans. This is when you take out a new loan and pay off all your old loans, and then make one payment to your new loan every month until it’s paid off. You might be able to get a lower interest rate and the best student loan refinance companies may work with you if your credit score isn’t so great.

Even if you don’t have a cosigner option right now, you can build your score so you can eventually qualify for a loan and better interest rate by yourself.

About the author
Dori Zinn
Dori Zinn

Dori Zinn is a student loan authority and a contributor to Credible. Her work has appeared in Huffington Post, Bankate, Inc, Quartz, and more.

Read More