Feb
04
2009

Cosigning for stepson can hurt your credit report

Dear Experian,

I cosigned for a car for my stepson. I thought that if he didn’t pay I would be responsible for the loan, and I was fine with that. What I didn’t realize is that if he was late with his payment, my credit would be affected. I had a credit score of 803 when I signed. He missed payments, and now my credit score is lower. Even though this is not my loan, will my credit report be affected for seven years? Is there a way to correct this?

- LPH

 

Dear LPH,

There is no correction to be made. When you cosign for a loan you are accepting full responsibility for payment of the debt, just as you said. That means the account and its payment history will appear on your credit report, as well as your stepson’s report.

That is why I caution everyone to be very careful about agreeing to cosign for anything. When you cosign you vouch for the other person’s character, agree to pay the debt if they don’t and sign a contract that says you will suffer the consequences equally if that debt is not paid on time and in full.

I know that good hearted people want to help others, but you have to protect yourself. The most important way to do that is to establish access to the account. Many accounts are accessible online or by automated phone systems, and all you need is the password. It places the burden on you to check the account each month before the due date to ensure that a payment has been made, but it is better than letting your credit be ruined.

Also, if there is a clear understanding by your stepson that you are going to be checking and that late payments will affect your credit, that puts more pressure on him to manage the account responsibly. That can be good for him as he learns about debt and the importance of his credit report.

The late payment or payments will remain on your credit report for up to seven years from the original delinquency date of the missed payment. However, the further in the past the late payments occurred, the less impact they will have on your credit scores. A pattern of late payments, though, will take longer to overcome.

Bad things happen to good people, and credit scoring systems recognize a one-time event, which usually does not mean you will be a bad credit risk.

Thanks for asking.

- The “Ask Experian” team

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