How to Avoid Ruining Someone Else's Credit
Understand how cosigning works., Remember when your bills are due., Pay the full amount on time., Talk to your cosigner before you fall behind., Contact your creditor immediately., Remove a cosigner, if possible., Refinance the loan., Sell a...
Step-by-Step Guide
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Step 1: Understand how cosigning works.
If you don’t have a credit history yet—or if you have a bad credit history—lenders won’t give you money unless you have someone agree to be responsible for the loan.
Often, this person is a parent or partner.
If you default on the loan, this person must make payments, otherwise they can be sued.
For example, you might be 18 and buying a car for college.
Because you have no credit history, a bank requires that your parents cosign the loan.
They are now personally responsible on the loan and must pay it back if you don’t.Alternately, you might have gotten into financial trouble, causing banks to deny your loan application.
You have your spouse cosign for a personal loan.
If you default, your spouse’s wages may be garnished to pay for the loan. -
Step 2: Remember when your bills are due.
You can’t pay what you can’t remember.
If you struggle to remember when a bill is due, sign up for alerts.
Many credit card companies offer them.
As your payment date approaches, you’ll receive either an email or a text message reminding you that payment is due.
There are many apps you can download as well, including Manilla and Bills Reminder from Handy App., If you’re late, then your account could go into default, which will be reported on your cosigner’s credit history.
You also might get hit with penalties, late fees, and a higher interest rate, all of which increase your indebtedness.If necessary, create a budget to free up as much money as possible to contribute to your debts.
Be responsible.
Your cosigner did you a favor by cosigning for the loan. , Life is unpredictable, and you might suddenly run into financial problems.
Maybe you lost your job or had unexpected medical expenses.
Regardless of the reason, you should talk to your cosigner immediately because defaulting has negative consequences for them.
For example, if your car is repossessed, then the repossession and delinquency will show up on your cosigner’s credit report.Maybe your cosigner can help you.
For example, you might need to leave your apartment and contribute your rent payments to your loans.
Your parents might let you move back home. , You might have some options if you fall behind.
For example, you might be able to ask that student loan payments enter forbearance or deferment.
Other creditors, such as credit card companies, might be willing to defer payments for a few months until you get back on your feet.
The key is to avoid default, which typically is reported to the national credit bureaus.
A negative entry will show up on your cosigner’s credit report, which will hurt their credit score.
Gather documentation to show your lender that explains why you are having financial problems.
For example, if you’ve stopped working due to illness, find medical records and medical bills. , Sometimes, a lender will let you remove a cosigner after you’ve proven that you can make timely payments over a period of time.Contact your lender and ask if you can remove them.
The cosigner can’t remove themselves, so this is something you need to take the lead on.
You can call your lender or send them a letter.
The Consumer Financial Protection Bureau has sample letters you can use to request a release: https://www.consumerfinance.gov/about-us/blog/consumer-advisory-co-signers-can-cause-surprise-defaults-on-your-private-student-loans/. , Another way to release a cosigner is to refinance any debt and not have them cosign for the new debt.
If your credit history has improved, you might be able to secure a new loan or credit card.
For example, you can transfer a joint credit card debt to a card in only your name.
Use a balance transfer.
Often, you can get a credit card with an initial 0% APR for up to a year or more.You might also be able to refinance a home mortgage or a car loan in only your name. , If you can’t make car payments any more, maybe you need to sell the car.
Use the proceeds to pay off the amount of the loan.This is a good way to protect your cosigner’s credit.
Many assets depreciate and are worth less than the loan.
Accordingly, you might still owe money on the loan.
However, the amount should be much smaller. , Chapter 7 might provide you with protection, but it doesn’t offer much protection to a cosigner on a debt.
After you file Chapter 7, your creditors cannot pursue you because an automatic stay stops all collection efforts.
However, the stay doesn’t extend to your cosigner.
Instead, the debtor can pursue them for the debt.Instead of a Chapter 7, you can file a Chapter
13.
Chapter 13 offers a codebtor stay for non-business debts.
This will protect your cosigner from any collection efforts.
In a Chapter 13 bankruptcy, you can also set up a payment plan (3-5 years) to pay off your debts.
For example, you can pay off your car loan and not lose your car. -
Step 3: Pay the full amount on time.
-
Step 4: Talk to your cosigner before you fall behind.
-
Step 5: Contact your creditor immediately.
-
Step 6: Remove a cosigner
-
Step 7: if possible.
-
Step 8: Refinance the loan.
-
Step 9: Sell a financed asset.
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Step 10: Avoid Chapter 7 bankruptcy.
Detailed Guide
If you don’t have a credit history yet—or if you have a bad credit history—lenders won’t give you money unless you have someone agree to be responsible for the loan.
Often, this person is a parent or partner.
If you default on the loan, this person must make payments, otherwise they can be sued.
For example, you might be 18 and buying a car for college.
Because you have no credit history, a bank requires that your parents cosign the loan.
They are now personally responsible on the loan and must pay it back if you don’t.Alternately, you might have gotten into financial trouble, causing banks to deny your loan application.
You have your spouse cosign for a personal loan.
If you default, your spouse’s wages may be garnished to pay for the loan.
You can’t pay what you can’t remember.
If you struggle to remember when a bill is due, sign up for alerts.
Many credit card companies offer them.
As your payment date approaches, you’ll receive either an email or a text message reminding you that payment is due.
There are many apps you can download as well, including Manilla and Bills Reminder from Handy App., If you’re late, then your account could go into default, which will be reported on your cosigner’s credit history.
You also might get hit with penalties, late fees, and a higher interest rate, all of which increase your indebtedness.If necessary, create a budget to free up as much money as possible to contribute to your debts.
Be responsible.
Your cosigner did you a favor by cosigning for the loan. , Life is unpredictable, and you might suddenly run into financial problems.
Maybe you lost your job or had unexpected medical expenses.
Regardless of the reason, you should talk to your cosigner immediately because defaulting has negative consequences for them.
For example, if your car is repossessed, then the repossession and delinquency will show up on your cosigner’s credit report.Maybe your cosigner can help you.
For example, you might need to leave your apartment and contribute your rent payments to your loans.
Your parents might let you move back home. , You might have some options if you fall behind.
For example, you might be able to ask that student loan payments enter forbearance or deferment.
Other creditors, such as credit card companies, might be willing to defer payments for a few months until you get back on your feet.
The key is to avoid default, which typically is reported to the national credit bureaus.
A negative entry will show up on your cosigner’s credit report, which will hurt their credit score.
Gather documentation to show your lender that explains why you are having financial problems.
For example, if you’ve stopped working due to illness, find medical records and medical bills. , Sometimes, a lender will let you remove a cosigner after you’ve proven that you can make timely payments over a period of time.Contact your lender and ask if you can remove them.
The cosigner can’t remove themselves, so this is something you need to take the lead on.
You can call your lender or send them a letter.
The Consumer Financial Protection Bureau has sample letters you can use to request a release: https://www.consumerfinance.gov/about-us/blog/consumer-advisory-co-signers-can-cause-surprise-defaults-on-your-private-student-loans/. , Another way to release a cosigner is to refinance any debt and not have them cosign for the new debt.
If your credit history has improved, you might be able to secure a new loan or credit card.
For example, you can transfer a joint credit card debt to a card in only your name.
Use a balance transfer.
Often, you can get a credit card with an initial 0% APR for up to a year or more.You might also be able to refinance a home mortgage or a car loan in only your name. , If you can’t make car payments any more, maybe you need to sell the car.
Use the proceeds to pay off the amount of the loan.This is a good way to protect your cosigner’s credit.
Many assets depreciate and are worth less than the loan.
Accordingly, you might still owe money on the loan.
However, the amount should be much smaller. , Chapter 7 might provide you with protection, but it doesn’t offer much protection to a cosigner on a debt.
After you file Chapter 7, your creditors cannot pursue you because an automatic stay stops all collection efforts.
However, the stay doesn’t extend to your cosigner.
Instead, the debtor can pursue them for the debt.Instead of a Chapter 7, you can file a Chapter
13.
Chapter 13 offers a codebtor stay for non-business debts.
This will protect your cosigner from any collection efforts.
In a Chapter 13 bankruptcy, you can also set up a payment plan (3-5 years) to pay off your debts.
For example, you can pay off your car loan and not lose your car.
About the Author
Nathan Webb
Professional writer focused on creating easy-to-follow DIY projects tutorials.
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