A 600 credit score likely isn’t high enough to cosign a student loan. If you can boost your score to at least 670, you’ll have better odds. According to FICO, which produces one of the most commonly used credit scoring models, 670 is a good score. A score of 600 falls in the fair range. With a higher credit score, you’ll be in a better position to cosign and unlock loans with more competitive interest rates.
Cosigning might not be the best choice even if your credit score is good enough to qualify. Consulting a financial planner — or even just someone you trust — can help you be sure you’re not sacrificing your own goals by adding your name to someone else’s loan.
“It’s important to seek out another viewpoint,” says Kim Stirling, a certified financial planner and owner of Next Gen Wealth Partners in Seattle. “A lot of times when it comes to money, there’s emotion involved.”
Cosigners most often come up in the context of private student loans. Most federal student loans don’t require a credit check, and students don’t need cosigners to qualify. In general, students should avoid private student loans whenever possible, so you’ll also want to make sure the primary borrower has exhausted other options before you sign on.
[Read: Best Private Student Loans.]
What Is a Cosigner?
A cosigner is a person who joins the primary borrower on a loan agreement to help the primary borrower’s odds of approval. A student with no credit history may not be able to access private student loans without a cosigner.
The reason a cosigner boosts approval odds is that this person, who typically has a stronger credit profile than the primary borrower, promises the lender that they’ll repay a loan if the primary borrower doesn’t. That makes the lender comfortable enough to extend credit.
But if the primary borrower misses a payment, the co-borrower’s credit score can be affected. On top of that, tension around payments can damage the relationship between the co-borrower and primary borrower, who may be family members.
[READ: Fastest Co-Signer Release Student Loans]
Can You Cosign a Federal Student Loan?
Although cosigning generally comes up in the context of private loans, not all federal loans are immune from credit consideration. Credit history can come into play for borrowers considering a Direct PLUS loan (a type of federal loan available to parents, graduate students and professional students). Borrowers with certain kinds of delinquent debt or who have faced a negative credit event such as a foreclosure or wage garnishment within the past five years can’t qualify alone.
Instead, those borrowers can look for endorsers who don’t have an adverse credit history, as defined by the Department of Education. Like a cosigner, the endorser agrees to repay the loan if the primary borrower doesn’t. These loans can also affect the endorser’s credit score.
What Credit Score Does a Cosigner Need?
You might be able to cosign a student loan with a credit score as low as 670. You’ll want a FICO score of at least 760 to unlock the most competitive interest rates, though.
Lenders don’t just consider credit scores. Other factors, such as your income, can also play a role in whether you qualify to cosign a private student loan.
How to Improve Your Credit Score to Cosign a Student Loan
If your credit score isn’t good enough to cosign, consider the following steps to improve it. With a higher credit score, you’ll be in a better position to cosign, if you decide to do so, and you’ll also be more likely to qualify for lower rates across all loan products.
— Bring down your credit utilization rate. Ideally, you shouldn’t use more than 30% of the credit you have available (across all your credit lines and on individual accounts). Keeping your utilization below 10% (but above 0%) is even better.
— Continue building or establish a history of on-time payments. If you’ve never missed a payment, keep up the good work — your payment history is a major factor in your credit scores. If you’ve had some late payments reported to the credit bureaus, know that they’ll affect your score less as time passes, so focus on staying current going forward.
— Check your credit reports and dispute any errors. Inaccurate information on a credit report can drag down your credit score. You’ll want to keep an eye out for unauthorized credit inquiries, incorrect credit limits and other things that don’t reflect your legitimate accounts and behaviors.
Should I Cosign a Student Loan?
You shouldn’t cosign a student loan until you have a full understanding of the risks and potential benefits. In a best-case scenario, the loan could help increase your credit score and the credit score of the primary borrower. This can happen with a history of on-time payments and if the student loan improves your credit mix.
Before you officially sign, though, review your financial picture and make sure the primary borrower has considered all funding options. Ultimately, the decision is personal and will depend on your situation.
Consider Other Funding Approaches
Students should try to exhaust their federal funding options before resorting to private student loans. A private loan can beat out federal Parent PLUS loans. The borrower should also be willing to take a step back and consider other ways to fill some or all of the funding gap. That can include applying to colleges with lower tuition, seeking scholarships and prioritizing federal aid.
“That would potentially lower the size of the debt. Maybe for that reason they may need less of your help cosigning, I’m hoping,” says Diane Hirschhorn, lecturer of finance in the Leeds School of Business at the University of Colorado Boulder.
Assuming you have explored all other options, possibly in consultation with a financial professional, a private loan can make sense. “In general, I’m a huge proponent of education, and if the boxes are checked and it’s looking like it could really be manageable, then yeah, it could certainly be a viable route to go,” Stirling says.
Consider Other Financial Priorities
Make sure to weigh whether adding a student loan obligation to your financial portfolio could get in the way of more pressing financial needs. If planning for the possibility of assuming payments on the loan would hinder retirement savings, you should reconsider.
“People prioritize their kids’ education over retirement,” Hirschhorn says. “Your children really can borrow, but you really can’t borrow for retirement unless you’re extending yourself on credit cards.”
You may also want or need to open a home equity line of credit or refinance your home loan at some point, for example. Having the added debt load of the student loan could make it harder to do that.
Finally, having a strong credit score is useful throughout your life, and you shouldn’t be willing to sacrifice yours for the sake of the cosign. If you’re nervous about whether the primary borrower will reliably make on-time payments, this could indicate that cosigning isn’t a good idea.
At the least, you can make sure the primary borrower enrolls in autopay to increase the odds that payments consistently go through on time.
Consider Loan Details
You should make sure the primary borrower is shopping around to find the most affordable loan option. “I would price compare the loans and try to get the lowest rate possible for it to be the most favorable,” Hirschhorn says.
Some private student loans offer cosigner release. With this kind of loan, the cosigner can be removed after the primary borrower meets a set of terms, including making a certain number of on-time payments.
Cosigners should also consider what would happen in a worst-case scenario, Stirling says. “What if the borrower can’t make the payments, or can’t make the payments on time? How is that going to affect their financial situation?”
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Can I Cosign on a Student Loan with a 600 Credit Score? originally appeared on usnews.com
