How Good Must a Cosigner's Credit Be?

You can earn a comfortable income, carry few debts and have all of your paperwork in order, but if you have a poor credit history your lender is likely to deny your loan application. Consumers with damaged credit aren't the only ones who have trouble getting loans approved. Young individuals who haven't had time to build a credit history also face obstacles when applying for loans and credit cards. If you have a co-signer with positive credit apply with you, however, the lender is more likely to approve your application.

Lender Requirments

Just as the approval requirements for a loan vary by lender, so too do the credit requirements for co-signers. For example, Citigroup, a financial services corporation, rejects any co-signers whose credit reports reflect past credit card charge-offs, bankruptcies, liens, judgments or late payments. Asking your lender ahead of time what its co-signer requirements are helps you avoid choosing a co-signer who doesn't meet your lender's qualifications.

Credit Scores

A co-signer with a credit score of 720 or higher will meet almost any lender's score requirements. This is because lenders group individuals with credit scores above 720 in the same risk bracket with individuals who carry scores above 800.

If your co-signer wants to check his credit score before submitting the application, he must purchase his FICO scores, since FICO scores are the scores most lenders pull. While the credit bureaus offer to sell consumers their credit scores, the credit scores marketed through the credit bureaus are calculated using the VantageScore system and aren't the same credit scores that lenders pull.

Income Requirements

A co-signer's credit rating isn't the only factor your lender will consider when processing your loan application. The lender will also request that you co-signer provide proof of income and information about her current financial obligations. Your lender must evaluate the co-signer's financial stability to ensure that, should you stop paying your loan, your co-signer has the necessary disposable income to take over your payments.

Considerations

If your co-signer meets your lender's qualifications and the lender approves the loan, it will report the account to the credit bureaus and the entry will appear on both your credit report and your co-signer's. Paying on time is imperative. Making a single payment 30 days late won't devastate an already damaged credit score, but your co-signer's credit would suffer considerably. The higher your credit score is, the more points a negative entry will cost you. For example, if your co-signer carries a credit rating of 780, a single missed loan payment could drop his score over 100 points.