Dear Debt Adviser,
I co-signed for a friend to purchase a car. She was more than 30 days late on a payment, and it was reported to the credit bureaus. I am currently in Afghanistan and decided to check my credit report and noticed my credit score had dropped. The late payment was listed on my credit report. I called the financing company and explained to them I did not live at the address listed and was not responsible for payment. As of this date, I have not received a response. Please tell your readers: Never co-sign for anything!
-- Phyllis
Dear Phyllis,
I am happy to allow you to inform my readers of the dangers of co-signing. If just one person refrains from co-signing a loan, your letter will have accomplished a great deal.
There is usually a good reason a professional lender won't make a loan. But what would a caring person do? Everyone will be better off if you encourage the credit-impaired borrower to correct the problem and not paper it over with your good credit.
As you have found, when you co-sign a loan, you often are not aware when the person you co-signed for misses a payment. Frequently, you find out after you see it on your credit report (as you did) or, worse, when the creditor calls because the loan is in default. Even worse, if the borrower doesn't pay, you have to.
It is hoped that your friend was only late the one time and has since begun making on-time payments. The hit to your credit report for the late payment will remain for the next seven years. I recommend that you communicate with your friend about the loan -- not in a confrontational manner, but as a concerned friend. If you are financially able to help her make payments, request that she tell you the next time she's going to miss a payment. That way you can send the creditor whatever amount she is short. Let her know you'd like her to refinance whatever you co-signed for at her first opportunity, to get you off the hook.
In a worst-case scenario, if your friend doesn't make any payments on the loan, you should qualify for protections under the Servicemembers Civil Relief Act, or SCRA. Check with your base legal office to learn more about benefits the SCRA may provide you.
Phyllis, your letter will benefit my readers. But just to drive the point home: Readers, never co-sign a loan for someone. If you choose to help a friend or family member, loan them the money yourself or take out a loan in your name only and have them pay you. That way you will know for sure whether payments are made, and your credit will not be adversely affected.
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