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Cosigning

Why Is My Daughter’s Bad Credit Affecting Me?

Dear Experian,

Why is my daughter's credit card affecting me when she doesn't make payments? We have the card together, but she's the main cardholder. It's a joint card.

- SST

Dear SST,

When you agree to cosign for someone, it means that both you and the person you are cosigning for are equally responsible for the account. In other words, the joint card is not just your daughter's account. Being a joint account holder means it's your account as well, and you are contractually responsible for making sure all payments are made on time.

What is a Cosigner's Responsibility?

When a lender issues an account with a cosigner, the cosigner serves as a protection for the lender in the event the other applicant defaults on the debt. It is the cosigner's responsibility to check to make sure the payment was made each month. If your daughter fails to make at least the minimum payment on time, the delinquency will show on both your credit report and on hers, even if you didn't make the charges.

How Will a Late Payment on a Joint Card Affect Me?

Any late payment that appears in your credit history will likely have a negative impact your credit scores. The good news is that the longer ago the late payments occurred, the less they will affect you - but, they may have some impact on your credit scores for as long as they appear.

For this reason, it is important to make sure that both you and the person you are cosigning for understands the risk you are taking by agreeing to cosign, and the responsibility you each have to manage the account responsibly so that neither of you are impacted. The same is true when you cosign for a loan, whether it be a car loan, a student loan, or even a mortgage. You may not be the one driving the car, going to class, or living in the home — but you're still responsible for the debt.

If the account with your daughter is currently past due, the most important thing you can do to get your credit back on track is to bring the account current and pay off the balance. Then, talk to your daughter. Should you choose to keep the account open, you should take care to monitor it closely each month to ensure payments are made by the due date.

How Can I Repair My Credit?

Credit scores weigh the most recent information the most heavily. The two most important factors in your credit scores are your payment history and your utilization rate, or balance-to-limit ratio. If the rest of your credit history is positive, you can begin to recover by continuing to make all your payments on time and keeping your revolving account balances low — a utilization rate below 10% is best for your scores. In time, you should see your credit scores rebound.

Thanks for asking,
Jennifer White, Consumer Education Specialist

This question came from a recent Periscope session we hosted.


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