Ask Dr. Don
By Don Taylor, Ph.D., CFA • Bankrate.com
Today, Dr. Don explains the credit
consequences of co-signing a loan and why a past bankruptcy makes
it so hard to get a credit card.
co-signing and credit reports
Dear Dr. Don,
My mom has good credit, but she co-signed a car loan with another
person, and this person isn't making the payments on time. My mom
wants to know how these late payments affect her credit because
she's planning to rent an apartment when we move from Puerto Rico
to Seattle.
Luis Loan
Dear Luis,
When your mother co-signed the loan, she agreed to be responsible
for the payments. If the lender is reporting the car owner's late
payments to the credit bureaus, he also is reporting your mother
as delinquent (late) with the payments.
Landlords have a legal right to review a tenant's
credit report before signing a lease. Any delinquencies on your
mother's credit report might hurt her ability to rent an apartment,
especially in a new city.
I recommend that she get a copy of her credit
report to see what actually has been reported. She can access the
credit bureaus from this site's Link Library.
Don't forget your umbrella.
Qualifying for promotional cards
Dear Dr. Don,
Seven years ago this July, I filed for Chapter 7 bankruptcy. I wasn't
prepared financially for an unexpected layoff. Before the layoff
I had very good credit. After filing, I immediately applied
for a secured card in an attempt to re-establish a credit history.
I've purchased a house two years ago and have stayed current on
my mortgage payments. My credit cards are always paid on time. I've
written almost 2,000 checks without problem and have managed to
invest a decent amount of money in mutual funds.
I recently received my FICO score. My score
of 685 was rated just below excellent. I decided then to apply for
a new credit card because of a promotion that had a balance transfer
rate of 1.9 percent for 9 months and then the rate would increase
to 15 percent. I was rejected. The company doesn't want to know
my circumstances or what I've done since the bankruptcy. Why do
you think I was rejected if my FICO score indicates that my credit
is pretty darn good?
Credit Rebuilder
Dear Rebuilder,
A Chapter
7 bankruptcy stays on your credit report for 10 years from the
filing date. Banks have been telling us all along that the FICO
score isn't the only thing they look at when making lending decisions.
Your experience suggests that they're telling the truth and that's
why I think you were rejected.
The three major credit bureaus -- Equifax,
TransUnion
and Experian
-- each have proprietary credit scoring models developed in conjunction
with Fair, Isaac
& Co., or FICO, for short. Consumers don't differentiate
between the three bureaus and call the scores "FICO scores." Equifax
names its model's results "beacon scores." Lenders want to assess
the probability that a borrower will repay the loan; credit scoring
models attempt to predict that behavior.
When you get promotional mailings advertising
low-interest introductory rates, the literature suggests that you've
been prequalified to receive the promotional rate. You've only been
prequalified to receive the mailing. The credit decision will be
based on your credit history -- including your FICO score. It's
not fraud, it's marketing.
Bankrate.com writers base
their answers on our editorial content and advice of financial professionals.
We make no claims or representations about the accuracy, timeliness or completeness
of such content, advice or the answers provided to you. Our content, advice
and answers are intended only to assist you with your financial decisions. However,
by its nature such information is broad in scope. Your financial situation is
unique, and our content, advice and answers may not be appropriate for your
situation. Accordingly, we recommend that you get different opinions and seek
the advice of your accountant and other financial advisers before making any
final decisions or implementing any financial or investment strategy.
-- Posted: June 7, 2000
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