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Will Adding a Co-applicant Who has a Low Credit Score Affect my Loan Eligibility?

24-May-2019 written by : FSI-Team

Will Adding a Co-applicant Who has a Low Credit Score

If you have ever applied for a home loan, then you know how hard it can be at times to get one. However, there are many different things that you can do to facilitate the process and get the approval faster. One of these is getting a co-applicant to apply with you.

Who is a Co-Applicant?

A co-applicant is someone who applies for a loan with you in a way that they are equally responsible for its repayment even though you are the primary applicant. They can be your spouse, sibling, parent, or even a friend.

Why Add a Co-Applicant?

One of the main reasons why people get co-applicants on board is because they have a low CIBIL score. When your score is low, then it can be really difficult to get a loan. Similarly, if your debt-to-income ratio is too high, which means that there is already a significant amount of debt in your records, then you may face difficulty in getting a loan.

If your own score is low, then you can take help from your spouse or sibling in case their score is up to the mark. So, when they apply for the loan with you, then the lender is more likely to approve the application compared to when you apply individually.

Some people also apply for loans like home loans, personal loans, etc. that have a high rate of interest to get lower rates.

Adding a Co-Applicant Who has a Low Credit Score

If you are adding a co-applicant in your loan application, then it makes sense only if their credit rating is good. This is because that’s the whole point of applying for a joint loan. If they have a low credit score, then not only it will not help you in any manner, but it will also reduce your odds of getting approval in the first place.

Qualities of an Ideal Co-Applicant

If you are applying for a loan with a co-applicant, then you should check the following:

Credit Score

There is no point in submitting loan application when the co-applicant has a low CIBIL score. If you want better interest rates and faster approval, then choose someone whose CIBIL score is at least 750 which is the starting point of a good score.

Debt-to-Income Ratio

Debt-to-income ratio is used to check the financial standing of an individual. If someone’s ratio is high, then it means that they are already repaying a massive amount of debt. So, if your co-applicant’s ratio is high, then the lender will know that they will struggle in repaying another loan. This will affect your loan eligibility.

Repayment History

Repayment history refers to the history of EMIs of home loans, personal loans, etc. and credit card payments that have been paid by you in the past. What a lender looks in this is the timing. If there are many late payments, then it can raise a red flag and hurt the loan application.

The Best Way to Get a Loan

If you are unable to find the right co-applicant for your loan, then it’s better to apply for it yourself. All you need to do is improve your score as much as possible. As mentioned earlier, if your CIBIL score is above 750, then you can usually get a loan rather easily. If yours is lower, then you can improve it by taking the following steps:

  • Obtain your CIBIL report from the agency’s official website (you get one free report every year) and see if there are any discrepancies/mistakes in the records. If there are any, then contact your bank to have these corrected.
  • Use credit cards in moderation. Increasing credit utilization can hurt your CIBIL score.
  • Don’t apply for a loan at different banks at the same time. This leads to multiple inquiries for your credit report which is bad for your rating.

There are many misconceptions about applying for loans with co-applicants. Hopefully, this blog was able to clear some of these for you so that you can get the loan you need by taking the right steps. Good luck!


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