If you have bad credit, no credit or insufficient income, you may not qualify for a loan on your own. A lender will ask you to get a co-signer who meets the requirements. You can ask your spouse, a friend or a relative, as long as he or she has the necessary qualifications and is willing to co-sign a loan.
When considering a co-signer, choose a person with a good credit score and no recent negative information in the credit file. The lender has to see that the co-signer takes his credit obligations seriously and pays them on time. The information on your and your spouse’s report is probably very similar if you have joint loans or credit cards. If you don’t qualify due to a low credit score, your spouse’s score is within a few points of yours. In this case, he is not a good candidate for a co-signer.
Any negative information on your potential co-signer’s credit report may also disqualify him. If he has had a recent bankruptcy, collections or a garnishment, the lender may not approve him. Negative information remains in the credit file for seven to ten years and may affect lenders’ decisions during this time.
A lender may request a co-signer for a loan if your income is low. In this case, ask a relative or a friend who has had his current job for at least two years with the same employer or in the same industry. His monthly credit obligations should be no higher than 35 to 40 percent of his monthly earnings. The debt-to-income ratio requirements vary among lenders. Qualification guidelines are different for mortgages, home equity loans and student loans.
Before asking someone to co-sign on your loan, consider several things. The loan will be reported on your co-signer’s credit file. Any negative information—late or missed payments—will affect his credit score. If you default on your loan, your co-signer will be responsible for repaying the balance. Are you completely sure that you can afford to make the payments and to keep the loan in good standing at all times? You should not put your co-signer at risk if there is any chance that you may default on the loan.