Does It Affect the Loan If the Co-Applicant Has Bad Credit?

If you are applying for a loan with another applicant, her credit score will affect your loan approval. Lenders consider each applicant's credit history to decide whether to grant a loan. If granted, the lender will use information from the credit reports to set the terms of the loan. If you must have a co-applicant -- such as a spouse for a mortgage loan -- lenders can require that you have an excellent credit report and credit score to offset her negative report.

Interest Rate

You co-applicant's poor credit may mean you will pay a higher rate of interest on the loan. Interest pays the lender for the use of the money loaned, and if a lender believes you could default on a loan, the interest rate will be higher to offset potential losses. If you are co-signing a loan to enable someone with poor credit to qualify for the loan, the lender will pursue you for the unpaid principal and interest if the co-applicant does not pay.

No Credit History

Lenders typically require applicants with no credit history to have a co-applicant for any loans. If your co-applicant has bad credit, the lender typically will not approve your application. Because lenders must have a basis to determine your creditworthiness, if you have no credit history, the only report they have to consider is your co-applicant's. If you have a co-applicant who has a history of nonpayment, late payments or charge-offs, the lender assumes lending the money would be risky and can refuse your application.

Immediate Payment

If your co-applicant does not pay, typically a lender can decide to come directly to you for payment. Most states do not require a lender to seek payment from the primary borrower first; they allow lenders to sue either borrower -- or both -- to mitigate their losses. If the lender sues you, the court can enter a judgment against you, enabling the lender to garnish your wages for payment due, including attorney fees and court costs.


Co-applying for a loan with someone who has a high credit score can help you build your own credit history and, as you make payments on time and fulfill the terms of the loan, earn your own high score. Co-applying for a loan with someone who has a low credit score can damage your credit score if she does not pay as agreed. If you are co-applying with someone with bad credit, make sure you can afford to pay the loan if the other applicant cannot.