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An anonymous reader is worried about her family’s poor credit history:
How will my family’s credit history affect my own? My family has an awful credit history.
My father was once a very successful business man and sold his company years ago for a hefty sum. Not long after this, my parents divorced and my father got in a very nasty accident. He was in hospital for a year receiving treatment and surgery and has only recently been discharged. He’s had to claim bankruptcy and has no assets to speak of. The house is now paid for partly by benefits as he can no longer work.
I am a financially conscious recent university graduate. I have a decent wage at a job I enjoy, pay into a pension fund, have no serious debts to speak of and have a cash ISA with around £1,500 contributions going in annually. I am 22.
However, in order for my mother to live in a house, she needed me to go down on a mortgage with her as at her age she could not get a mortgage. Of course I agreed as family is infinitely more important to me than money. However, I do wonder what I can do to prevent future financial horrors. Do my parents’ credit histories affect my own?
Do any of you have experience with similar situations? I suspect that another person’s credit history cannot affect yours unless, as the author indicates, you are a co-signer on a loan (or credit card). How many of you have been a co-signer before? Was the experience a positive one or a negative one? How did you mitigate the risk?
This article is about Ask the Readers, Debt Monday, 22nd January 2007 (by J.D. Roth)
January 22nd, 2007 at 11:48 am
I had my parents co-sign my college loans so I could get lower interest rates while I was still attending (the rates on the loans without them is extremely high, ugg). Once I started putting them on my loans, I noticed an increase in my score - since they have pretty good credit. It seems that I am in the opposite situation as the reader, but did notice a change in my score once they were added.
I am hoping my score doesn’t drop when I consolidate and remove their names as co-signers.
January 22nd, 2007 at 12:02 pm
I have seen the negative effects of being a co-signer in the past. When my wife was in college she was a on one of her parent’s credit cards in order build a little credit. Nothing wrong with that at all, and it is a common practice.
But, my wife never actually used the card herself so she had no idea what type of balance was on it, what payments were made, etc. Well, when we were applying for our mortgage we were shocked to see my wife’s score and debt/credit ratio so out of the ordinary. Apparently her mom had essentially maxed out that card (over $10k).
We were faced with being unable to get the mortgage we wanted without this debt being eliminated. So we spent a bunch of time jumping through hoops trying to get her parents to pay off that debt. If she was removed from the card altogether it would wipe a long credit history as well so we were in a tough spot.
To make a long story short, thankfully her parents were in a position they could pay it off, but our lender would not give us the interest rate or down payment agreement we had initially gone for without that debt being eliminated.
It turned out to be a hassle and a bit of a shock, but at least it worked out. Unfortunately for many others in similar situations I don’t think it has such a happy ending.
I have another experience that is very similar but it involves business partners and unsecured business debt with personal guarantees and co-signers. I will spare you the ugliness of that ordeal at this time.
January 22nd, 2007 at 12:19 pm
A close friend is Joe Blow, III and his father is Joe Blow, jr. When he came of age and tried to get credit he couldn’t. After a few years he wisened up and ordered his credit report. On it were outstanding debts incurred by his father. Experian had mixed the two of them together in their files. I remember he called to correct the information and they told him he’d need a letter from his father stating that the debts were in fact his own. Didn’t happen since they weren’t speaking at that time. For a variety of reasons he just waited it out…about 5 years for them to fall off the edge of his credit report.
January 22nd, 2007 at 12:31 pm
It seems you’d be more likely to be hurt by your family members stealing your identity than just by them having bad credit for its own sake. A friend of mine’s dad wrecked his own credit and then decided to “borrow” my friend’s SSN (like the commenter above said, same name, different suffix) in order to “fix” things, but instead he made everything worse, then had a massive heart attack and died. So my friend is dealing with settling his father’s estate only to find out a bunch of these debts were on HIS credit report. Big mess, and little recourse since his father was dead. Eventually it worked out, but my friend had a couple of very busy summers.
January 22nd, 2007 at 1:29 pm
No one else’s credit can affect yours unless you co-signed on a loan with them. This includes parents’ mistakes with credit–unless they fraudulently used your name, their credit can’t damage yours.
I’d hesitate, however, before being a cosigner on a mortgage or loan for ANYONE, even my mother. If the BANK thinks she’s not a good risk, why should I think differently? In all likelihood, being a cosigner on his mom’s mortgage will end up damaging his credit because she or he or both of them won’t be able to pay the bills. But unless he signs a contract agreeing to be responsible for something in his mom’s name–there will be no damage to his credit.
January 22nd, 2007 at 1:47 pm
Hi - I know a woman whose mother has terrible credit and also has the same name. You’d think that credit agencies would be able to differentiate, but somehow, the bad stuff keeps coming up on this woman’s credit report even though it’s not her.
January 22nd, 2007 at 2:35 pm
I co-signed to help my mom consolidate all her credit card bills and two mortgages into one big loan last year. Her credit wasn’t great, and she needed me to co-sign in order to get a good rate.
I have excellent credit, so I was hesitant to help her at first, but what could I do? My mother supported me (even in adulthood), so I couldn’t say no.
I understand the consequences, that’s why I have a credit monitor that makes sure that my mother is paying her mortgage (on time) monthly. So far so good.
When it’s time for me to get a house of my own (hopefully in a couple of years), I’ll ask my mom to refinance again and put the loan back on her name alone (if all goes well).
January 22nd, 2007 at 4:31 pm
Family members credit scores do not affect your credit score unless they mix you up with another family member or you cosign one of their loans. If you cosign credit for them that creditor will be reporting the debt to the credit agencies in your name as well. So if you co-sign a child’s student loan for college the loan (and any missed payments) shows up on both credit reports.
Otherwise family credit has nothing to do with your credit.
January 22nd, 2007 at 4:34 pm
I know a woman whose mother has terrible credit and also has the same name. You’d think that credit agencies would be able to differentiate, but somehow, the bad stuff keeps coming up.
Here’s a first: your comments actually have me worried. My wife, Kris, has better credit than I do because she maintains some open credit card accounts. However recently we’ve been receiving collection agency calls for a “Kristina Roth”. My wife kept her last name, so they’re obviously calling for somebody else. Only they don’t believe us when we say there’s no such person here (and we know it’s not Kris because the woman they want lives on the other side of Portland). I’m going to have her run her free credit reports tonight…
January 22nd, 2007 at 5:14 pm
As a cosigner it will only effect you if she doesn’t pay the mortgage on time.
I hate to say it because I think family does have to come first… but I feel that Suze Orman is 100% right when she says NEVER co-sign for anyone, no matter what. It just saves everyone from hurt feelings and other consequences that can come if things do go wrong.
January 22nd, 2007 at 7:42 pm
It seems like your in the UK, so the laws may be different there than in the US so what I have to say may not apply to you.
In the US it is ILLEGAL to discriminate against anyone in any lending situation on the basis of age (except for minors) and many other factors under the Equal Credit Opportunity Act (ECOA). If there is a similar law on the books in the UK, you might have a solid lawsuit. So, sue the bank and your money problems are solved!
FTC’s website: http://www.ftc.gov/bcp/conline/pubs/homes/mortgdis.htm
But no, it seems the only thing that could endanger you is the mortgage you cosigned with your mom for. Keep track of that and you should be fine. Unless you inherited there lack of financial skills, in which case you may want to get some assistance. (The preceding was not intended to be a slam, just a bit of a warning. Please don’t misinterpret my good intentions!)
January 22nd, 2007 at 7:46 pm
Heres another good link on age discrimination: http://realtytimes.com/rtcpages/20060707_agediscrim.htm
January 22nd, 2007 at 10:57 pm
I’m guessing that JD’s anonymous reader is from the UK like me.
Its my understanding that since she has signed the mortgage with her mother, any default or late payment on that mortgage will adversely affect her credit rating.
Additionally, I think that if she is living at the same address as someone with the same surname as her, any adverse credit they have may be held against her unless she puts a letter of financial disassociation on file with the credit agencies, basically saying that she has nothing to do with them from a financial point of view. In this case she would be unable to do that with her mother, but could do so if relevant with her father.
For advice, I suggest she contact her local Citizens Advice Bureau which will be able to give her free advice - they’ll be able to confirm or deny what I have stated above.
May 1st, 2008 at 9:09 pm
Some of your commenters cleared up my question, which was how old is the anonymous gal’s mother that she can’t sign for the mortgage herself. I am also in the US and was actually surprised to discover that people 65 years and old regularly get 30 year mortgages. Kind of blew my mind, but I guess the mortgage company doesn’t care so long as they are getting their money. Good luck on that situation.
December 6th, 2008 at 8:40 am
You know what one of my law professors (who specializes in banking and credit law) called a co-signer?
“A fool with a pen.”
I wound up getting some of my mother’s bad credit, stuff from when she was overwhelmed with bills after my father died, on my credit report; we don’t have the same name, but they’re similar, and this was a third spelling that was similar to both our names. Experian decided it must be me, even though I lived in another state at the time.
I only found out about it because I was applying for bar admission and my application was held because they claimed I was lying when I said I had no judgments against me. So I pulled my report, and there it was — the default judgment against my mother obtained by the ambulance company (they worked fast; Dad had died at home in August, insurance wouldn’t pay the tab for the required ambulance to the hospital for the official declaration of death because he hadn’t been admitted, they took it to collections by the end of September and to court by the end of the year).
It was a hassle getting it removed, since I required a letter from the attorney who filed the suit clearing up who the defendant was, but I got it removed. It opened my eyes to how sloppy the credit reporting agencies are.
But while your parent’s or child’s or sibling’s credit won’t affect yours unless you’re a cosigner or there’s some identity mixup/fraud issues, be aware that spouses routinely affect each others’ credit, even when they don’t keep any joint accounts.