Does a Co-Signer Need a Credit Check & Financial History?

Credit Check

• All lenders will check a co-signer's credit report as a major step in determining whether to approve the loan or credit card. Each lender has its own standards for how good the co-signer's credit score needs to be, but in general, you should not have a bankruptcy, foreclosure or serious delinquency listed on your credit report. In addition, lenders look for consistent payment history and low debt load, so you can step in and make payments if necessary.
  
  

Negative Effects on Credit

• The credit check will result in an inquiry on your credit report, regardless of whether the loan application is approved. This inquiry will usually lower your credit score by a few points. In addition, if the application goes through, the new account will further lower the portion of your credit score that considers new credit. Beyond that, the effects on your credit score all depend on how the primary borrower manages the debt. The full payment history will appear on your credit report and on his.
  
  

Financial History

• The amount of financial history you need to provide depends on the lender and the type and amount of the loan. Many credit card applications just ask for the co-signer's annual income and do not require further verification. Mortgage lenders, on the other hand, usually require the co-signer to submit tax returns, W-2s, pay stubs and bank account statements to help determine how much the borrower and co-signer are eligible to borrow.
  
  

Risks

• Co-signing comes with serious risks that you should consider before signing the agreement. The lender can -- at any time -- pursue you to repay the loan. Lenders rarely do this if the primary borrower is making payments on time, but as soon as the borrower misses a payment, the lender may come to you to collect it. If the primary borrower refuses to pay, you are liable for the full debt. The secondary risk of co-signing is that it can make it more difficult for you to obtain credit. Even if the primary borrower pays on time and your credit report remains positive, lenders will still consider the amount of the co-signed debt and monthly payments when determining how much you can borrow on your own.