Question:

I have a pretty good credit history. I am thinking about adding my daughter
as a joint account holder with me since she doesn’t have any credit history.

How will her credit affect my credit report?
Would it be better if I cosigned a credit card for her?

If she screws up and misses a payment, how long would it affect my credit report?
Would she or I be able to get the lender to remove it from my credit report,
since I would be just a cosigner?

Answer:

Cosigning is tricky business. On the one hand, it gives you the opportunity
to help your daughter build her credit history. On the other hand, it can be risky
for your credit. (A joint account is just a different name for a cosigned account.)

A few facts about cosigned accounts:

• When you cosign, you agree to be responsible for the entire loan as if it is your own.
  If the primary borrower (the person for whom you cosign) pays late,
  or doesn’t pay at all, you are on the hook for the entire loan plus any fees.

• In most cases, the lender does not have to notify the cosigner of late payments
  on the account. If the bill goes unpaid, you may not find out about it
  until you get a call from a collection agency.

• If the lender reports accounts to the credit reporting agencies, the account will be
  reported under both the primary borrower and cosigner’s names. The account
  affects both the borrower and cosigner’s credit scores equally.The credit score does not handle a cosigned or joint account differently
  than an individual account.

• Even if the bills are paid on time, the debt will be included when calculating the
  cosigner’s credit score, and could affect the cosigner’s ability to get a mortgage
  or other loan.

• Lenders almost never remove cosigners from joint accounts.
  The account will almost always have to be paid off in full and closed in order
  to separate yourself from the primary borrower.If that person is having trouble making payments, it is unlikely she or he will be able
  to refinance the loan in her or his own name.

In your case, it sounds like you are trying to help your daughter establish credit.
Your strategy of adding her to your account could work, assuming you have a good
payment history and a relatively low balance on that account.

You run the risk however, that she will run up the card and you could get stuck paying
those charges. It could be even worse if you cosign an account for her.

You will be responsible for all the charges on the account if she cannot pay them.
She will receive the bills, so you will not be able to monitor the payments.

A better way would be to encourage your daughter to build her credit with a
secured credit card. If you want to help her, you can directly lend her the money
for the security deposit, but you won’t put your credit at risk when she opens
the account in her own name.

For a list of available loans for people with no credit history,
check out:
http://plus2000.credit4you.hop.clickbank.net/

This entry was posted on Thursday, October 11th, 2007 at 3:04 am and is filed under Credit Reports, Credit Card Debt. 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.