Cosigners and Credit References for Private Student Loans

On many credit applications, there are places for other individuals to input information and the roles they play with regard to the account. The most common roles include cosigner and credit reference.

Cosigner Overview

What Is a Cosigner?

A cosigner, also known as a guarantor, is an individual who agrees to pay any debts if the primary account holder is unable to. A cosigner leverages their credit rating and reputation on behalf of the borrower to allow the borrower to obtain credit they might otherwise be unable to get.

Who Can Be a Cosigner

Very often, cosigners are parents or other family members, assisting children to obtain their first line of credit, as most lenders will not lend to people with no credit history. It is not a requirement that a cosigner be a member of your family. A cosigner can be any legal U.S. citizen with a good credit score.

What Does a Cosigner Do?

Cosigners cannot use the line of credit for their own personal use. The cosigner is essentially telling the lender that if for any reason the student taking out the loan can not pay back loan as agreed upon in the terms of the loan then they will be responsible for making the payments on the loan. A cosigner also has to submit required financial information to the lender in order to complete the loan application process.

Important Facts About Cosigners

  • Cosigners must be U.S. citizens with a good credit score.
  • Cosigners provide information to the lender about the borrower
  • Cosigners will have their credit score pulled by the lender during the application process.
  • A good credit score from the cosigner can override a bad or limited credit history of the student.
  • Cosigners credit score will be affected by the loan
  • Cosigners are responsible for the payments on the loan if the borrower fails to make payments
  • Cannot use the loan funds

Credit Reference Overview

What Is a Credit Reference?

A credit reference is an individual who agrees that they will provide reliable information about the borrower to the lender. A credit reference can also be the primary contact person in the event the borrower cannot be reached.

What Does a Credit Reference Do?

Credit references do not leverage their credit rating or reputation; they merely provide information to lenders about the borrower. A credit reference should have a relationship with the borrower and have knowledge of the borrower's credit history.

Who Can Be a Credit Reference?

Common credit references include family, friends, and businesses that the borrower has worked with in the past.

Important Facts About Credit References:

  • Credit references provide information about the borrower
  • Credit references are not responsible for the loan if the borrower fails to make payments
  • Credit references do not have their credit rating affected by the loan
  • Credit references cannot use the loan funds