When you apply for a loan, the lender will check your credit score to determine your creditworthiness as a borrower. A high credit score typically results in better terms, while a low score may lead to unfavorable ones like a high-interest rate or worse, the rejection of your application.

If you’re thinking about taking out a joint loan with a spouse, partner, or friend, you may be wondering whose credit score a lender will use to make their lending decisions. While the credit score of the primary borrower is usually the one used, it isn’t always the case.

How Does A Joint Loan Work?

A joint loan is a type of loan that is taken out by two or more individuals. The loan is typically in all of the parties’ names and all of the parties are responsible for repaying the loan. Joint loans are often used for larger purchases such as a mortgage or a car loan, but they can also be used for smaller personal loans or credit card debt.

In most cases, the credit score of the primary borrower is the one that is used when applying for a joint loan. The primary borrower is typically the person who is responsible for making the loan payments and is often the one with the higher credit score.

However, it’s important to note that lenders may also consider the credit scores of the other party members when evaluating a joint loan application. This is because the lender is taking on additional risk by lending to more than one borrower, and they want to ensure that all parties have a good credit history and are able to make the loan payments.

How Does A Joint Loan Affect Your Credit Score?

A joint loan can affect your credit score in a number of ways. Here are a few key points to consider:

• Payment history. If you are a co-borrower on a joint loan, your credit score may be impacted by the payment history of the loan. If the primary borrower makes all of the loan payments on time, this can have a positive impact on your credit score. However, if the primary borrower misses any payments or makes late payments, this can have a negative impact on your credit score.

• Credit utilization. Your credit score may also be impacted by the amount of credit that you are using. When you take out a joint loan, the amount of credit that you are using may increase, which could potentially affect your credit utilization ratio. This ratio is a measure of how much credit you are using compared to the total amount of credit that is available to you. A higher credit utilization ratio may have a negative impact on your credit score.

• Credit inquiries. When you apply for a joint loan, the lender will typically perform a credit check on both parties. This credit check will show up as a credit inquiry on your credit report and may have a small, temporary negative impact on your credit score.

• Credit mix. Finally, your credit score may be impacted by the mix of credit accounts that you have. When you take out a joint loan, this may change the mix of credit accounts that you have and could potentially impact your credit score.

Factors That May Affect A Joint Loan Application

Here are some of the factors a lender may look at when reviewing an application for a joint loan:

• Credit Scores. As mentioned earlier, the credit scores of all parties may be considered when evaluating a joint loan application. A higher credit score may increase the chances of being approved for the loan and may also result in a lower interest rate.

• Debt-to-Income Ratio. Lenders may also consider the debt-to-income ratio of all the parties when evaluating a joint loan application. The debt-to-income ratio is a measure of how much debt an individual has compared to their income. A higher debt-to-income ratio may increase the risk of default and may decrease the chances of being approved for a joint loan.

• Employment and Income. Lenders may also consider the employment and income of all parties when evaluating a joint loan application. A stable job and a higher income may increase the chances of being approved for a joint loan.

The Bottom Line

The credit score of the primary borrower is typically the one that is used when applying for a joint loan. However, lenders may also consider the credit scores, among other factors, of all the party members when evaluating a joint loan application.

Fortunately, having a high credit score increases your chances of qualifying for a joint loan. This is where credit restoration, the process of removing negative information from your credit report, can come in handy for you and the other co-signers.

Call us at 888-799-7267 to schedule a Free Credit Consultation.