How Is a Private Student Loan Reported on a Cosigner's Credit?

The number of private student loans grows by 25 percent per year, compared to just 8 percent for federal student loans, and should surpass federal loan volume by 2025, according to the FinAid website. Getting a private student loan likely means needing a cosigner, unless you have a good credit score or can tackle a high interest rate. If you get a cosigner, both of you will have the account on your credit report.

Identification

The credit reporting agencies list a private student loan on a cosigner's credit report like it would any other loan, because the cosigner accepts responsibility to pay it if the original signatory fails to pay. If, for example, the original signer misses a few payments, the negative information goes on the cosigner's credit report. Likewise, positive information goes on both signers' credit histories, according to credit bureau Experian.

Credit Inquiry

The lender always performs a credit check on a cosigner to ensure he can pay off the loan should it go into default. This incurs a hard credit inquiry, which takes about three to five points off of a credit score. Thus, a potential cosigner should not put his name on a loan if he plans to apply for other credit in the near future. Too many inquiries in a short span of time looks bad no matter what your credit score.

Considerations

Any loan you cosign on also figures into your debt-to-income ratio. In addition to your credit score, lenders calculate whether you can afford the loan. Usually, a debt-to-income ratio over 36 percent makes you ineligible for a loan. Mortgage providers are the lenders most likely to be concerned with a debt-to-income ratio.

Tip

Before cosigning on a private student loan or any other account, ascertain the creditworthiness of the applicant or try to find some other source of funding. Federal student loans, such as the Perkins and Stafford loans, do not factor in credit score or even require a credit history, according to SallieMae, the nation's only financial services company specializing in education. If you do cosign the loan, figure out whether you can pay off the total loan in case the applicant cannot afford to put anything towards the loan.