We’ve talked a little bit about the dangers of co-signing before, but we had several questions from readers that made the topic worth revisiting.

I co-signed for a mortgage with my daughter in 2006.. I regularly check my credit report and her mortgage never showed up on my credit report until 3 weeks ago.. when a 120 day late NOD was filed.. needless to say my FICO dropped from low 700’s to high 500’s.. I called the loan office and asked why I had never been notified.. surprised they said they did not have my contact info..bull.. they have my loan app. Do I have recourse against them?

Thanks,
Bob

Bob,

You can definitely challenge the negative information on your credit report. They never notified you of the debt, or gave you any chance to protect your credit. I doubt you have legal recourse against them, unless you find a very good lawyer. Anything is possible though.

Removing the negative information from your credit report will fix the current situation though, as long as the mortgage is current again.

For information on how to get those late notices of your credit report, you can download the free guide at the end of this article:

Best of luck!

Another reader, Vivian, asked this question about co-signing for car loans:

How about a car loan. I co-signed for my daughter. I’ve made several payments but can”t keep doing this. What’s going to happen to me?

Vivian

Vivian,

The unfortunate thing about co-signing is that you are agreeing to the debt right along with your daughter. This is a serious situation, and if you don’t attend to it quickly it will ruin your credit and your daughters.

My best advice is to call the bank that issued the loan and talk to them about the situation. First see if there is anything they can do to help you. If there is nothing they can do to help you (reduce payments, delay payments, etc.) then ask them what you should do. Find out what your alternatives are, but do not let the situation go.

If you can’t afford to pay for the car, and your daughter can’t afford to pay for the car, then call the bank and try to reach an agreement.

The more pro-active you are, the less impact this situation will have on your credit score. Since you are on the loan as a co-signer, then you should be able to discuss payments with the bank just like your daughter. It’s not privileged information if your name is on the paperwork too.

Call and take charge of the situation, and have your daughter help if she can. It’s never better to try to squeak by when the lender may have programs already set up that could help you manage the payments until your daughter can take them over again.

If your daughter has lost her job, make sure you mention that to them. Also make sure you know how much of a payment you and your daughter can afford each month. That will make it much easier to make payment arrangements with them.

Another reader, Tracy, had this question:

I co signed for my wife on a loan does this effect my debt to income ratio?

Tracy

Tracy,

Yes, co-signing a loan effects both your debt-to income ratio (how much debt you have vs. your income) and your debt-to-credit ratio (how much of your available credit you have used. ) The latter is 30% of your credit score.

Any time you co-sign on a loan is exactly the same as if you went out and borrowed the money yourself. The only exception is, sometimes co-signed loans are not reported to the credit bureaus unless the payments are late.

That means that co-signing will never help your credit score. It does not necessarily mean it will always hurt your credit score – especially if the person you are co-signing for makes the payments on time, it is not a problem.

Co-signing can temporarily drop your credit score because of your debt to credit ratio, but simply co-signing doesn’t usually have that big of an impact. It’s only when the payments start being late that you have a problem.

Lastly, another reader, Bob, had this question:

How would I determine if someone used me to co-sign a loan without my knowing ?

Bob

Bob,

The easiest way to tell if someone has been using your information to co-sign for a loan is to check your own credit reports. You can get your credit reports for free each year by visiting Annual Credit Report.com.

Make sure that you review your credit reports from all three credit bureaus – Equifax, TransUnion and Experian.

Look for any accounts being reported that you did not authorize, or any inquires from companies that you are not familiar with.

Have a question for us? Leave a comment below!

Keep Reading and Grab Our Free RSS Feed:

• Can Co-Signing Keep You From Getting A Loan?
• The Co-signer Delimma
• How Does Co-Signing A Loan Affect Your Credit?

This entry was posted on Friday, April 17th, 2009 at 13:17 and is filed under Credit Score Repair FAQ. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.