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You Can't Hide a Late Payment from your Co-Signer

By
Real Estate Agent with Long & Foster Real Estate, Inc.

Late PaymentIf you make a loan payment 30 or 60 days late (or, God forbid... even later), you can't keep that secret forever from your co-signer.  He may not know about it today - but two things will happen soon:

1) The co-signer will start receiving those nasty collection calls like you've been getting.

2) The co-signer's credit score will be reduced anywhere from 60-110 points for a single 30-day late payment.  (Repeatedly, if you have multiple 30-day late payments.)

Your late payment could cost your co-signor the ability to buy a car or refinance a home or - at the very least - it will cost him a higher interest rate for the life of any new loan.  In some instances it could even cost him a job or the ability to get another one. That's NOT a very good way to show your appreciation to someone who put everything on the line for you when a potential creditor doubted your character and commitment.

The damage to your co-signer is not easily undone, even after you catch up with payments.  That's because rebuilding a credit score begins with rebuilding one's credit history, and there is no magic formula for how long that will take.  Unfortunately, YOUR late payment will remain on your co-signors credit report (as well as yours) for seven years.

Since you can't hide late payment from your co-signer, offer him the opportunity to make your payment on time.  He may prefer to make the payment rather than suffer the potential consequences to his financial credentials from a late-payment.

Your credit score will be spared from damage, as well, if your co-signer does make that otherwise late payment.  But don't treat it like a government bailout.  Show your appreciation by reimbursing your co-signer as soon as possible. 

It's the least you can do to prove your co-signer's confidence in you was justified. 

It was, right?

 

COMING SOON:

  • Short Sale or Foreclosure - Which is Less Damaging to My Credit Report?
  • How Long Will It Take to Restore My Credit After a Short Sale?
  • Save $70,000 in Interest By Improving Your Credit Score Before Buying a Home
  • You need 20% Down Payment to Buy a Home - Truth or Myth?
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This infoMargaret Wodarmation was provided to you by Margaret Woda, an Associate Broker with Long & Foster Real Estate in Crofton Maryland. Contact Margaret today for general real estate information or to learn how she can help you buy or sell a home in Annapolis, Bowie, Crofton, Davidsonville, Gambrills, and Odenton. 

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Comments(33)

Margaret Woda
Long & Foster Real Estate, Inc. - Crofton, MD
Maryland Real Estate & Military Relocation

Loreena, I think adult kids truly don't think about the impact that late payments will have on their co-signer, and they don't take the obligation seriously.

Joan, that's the v oice of experience talking.

Stacey Ann - Just wait 'til those little ones of your grow up, and they get into a state of financial crisis through no fault of their own.  Then, they need a new car to safely drive your grandchildren to school and soccer... Well, you get the picture...

Oct 11, 2010 03:29 PM
Pat Haddad, ABR, CRS, ePRO, GRI
Keller Williams Indianapolis Metro NE - Carmel, IN
Carmel, Fishers, Westfield IN Real Estate Expert

Margaret--I am one of those parents who has always had trouble saying 'No' to her children.  Fortunately none have ever asked me to co-sign.  I guess saying 'No' is a form of tough love?  Sometimes people need to be told 'no' to learn how to stand on their own two feet and be independent.  As more and more households combine, as you and many who have commented have said, there will not doubt be lots more cosigning!

Oct 11, 2010 03:30 PM
Jeff R. Geoghan
Coldwell Banker Realty - Lancaster, PA
REALTOR, Marketing Manager

I don't know anybody who is co-signing these days around here.  Since my kids are all under 10 I haven't had to deal with it yet myself...

Oct 11, 2010 04:02 PM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Margaret... some excellent points. I have some that have co-signors right now... and I make sure that all involved understand this and how to refinance down the road... this definitely was a good post and I suggested it... nice job.

jeff belonger

Oct 11, 2010 04:41 PM
Liz Moras Migic
Chilliwack, BC
Chilliwack, British Columbia - Realtor

What terrific information - I can think of a few people who might like to get the reminder :) 

Oct 11, 2010 04:48 PM
Margaret Woda
Long & Foster Real Estate, Inc. - Crofton, MD
Maryland Real Estate & Military Relocation

Pat - I think most parents will help out their kids, if they can, but both parties need to understand the implications of this situation.

Jeff - With so many people having credit troubles, these days, I think more and more parents will be asked to co-sign with their adult children for car loans and even rent.  I thought this would be a good reminder, expecially for the borrower who may not truly "get" what it means to have a co-signer.

Jeff - I haven't had anyone co-sign on a mortgage lately,  but I definately see parent son cars.

Liz - I can, too, and that's why I wrote this.  LOL.

Oct 11, 2010 05:09 PM
Irene Kennedy Realtor® in Northwestern NJ
Weichert - Lopatcong, NJ

Margaret,

I know many parents who got an ugly surprise when the "kid" stopped making payments on student loans! Good alert for all.

Oct 12, 2010 10:38 AM
John Novak
Keller Williams Realty The Marketplace - Las Vegas, NV
Henderson, Las Vegas and Summerlin Real Estate

Borrowers need to understand that terms (and potential negative consequences) of the loan affect everyone on the loan. Better to be up front at all times.

Oct 12, 2010 11:05 AM
Donna Galinsky
Allen Tate Company - Cornelius, NC
Make Lake Norman Your Home!

What a great reminder for both parties. I bet many times neither party realizes that the co-signers credit can be adversely effected until it is too late.

Oct 12, 2010 12:01 PM
Michael Myers
King-Rhodes & Associates - Cherokee Village, AR

One of the first rules you learn in the real world of personal finance and common sense is never, under any circumstances, co-sign a loan for anybody, and that includes your own kids. If you do, what kind of a horrible life lesson are you teaching your kids? It's irresponsible. Co-signing a loan is a bad deal for the both parties. Don't do it, ever!

Oct 12, 2010 12:28 PM
Margaret Woda
Long & Foster Real Estate, Inc. - Crofton, MD
Maryland Real Estate & Military Relocation

Irene, me too.  I think it happens more often than not.

John, I think that family members are in denial and just don't fce the risks.  But that's just a guest.

Donna, that's so true.  And frankly, I don't know if they always care that their negligence can hurt a loved one.

Michael - You must not have any children.  It's not that easy to say "no", even when it may be more prudent to do so.

 

Oct 12, 2010 01:31 PM
Gregory "NNN" Garver
NNN Brokers USA Commercial Real Estate - San Francisco, CA
(323) 696 1031, Net Lease Broker

good...

Oct 12, 2010 01:50 PM
Chris Olsen
Olsen Ziegler Realty - Cleveland, OH
Broker Owner Cleveland Ohio Real Estate

Hi Margaret -- I wonder if co-signers really understand the potential risks?  In today's shaky economy, this kind of stress could be very hard if additional credit is needed.  I had no ideal it dropped one's score that much. Wow!

Oct 12, 2010 02:35 PM
Margaret Woda
Long & Foster Real Estate, Inc. - Crofton, MD
Maryland Real Estate & Military Relocation

Greg - Glad you like it!

Chris - I didn't either 'til I saw it on the USAA website.  I'm thinking that's a pretty reliable source.

Oct 12, 2010 02:56 PM
Frank D'Angelo
EXIT REALTY NEXUS Minneapolis & St. Paul MN - Coon Rapids, MN
Helping people is my business in Real Estate

Great post and thank you.  co signers will have that cloud on the back of their mind throughout the entire period.  Generates stress and anxioty for everyone.  Much more thought should go into the decision of co signing.

Have a great year

Frank D'Angelo Minneapolis MN

Oct 12, 2010 04:49 PM
Nancy Frimann
Eagle Ridge Realty/Signature Homes & Estates - Gilroy, CA

One of my fellow agents just lost a short sale (had the buyer) as it went to foreclosure.  The sellers had bought two homes in the heyday, and had the rich uncle sign on as co-borrower.  I'm sure at least one of those loans will have recourse, and the uncle must be super, duper mad...

Oct 12, 2010 05:19 PM
Margaret Woda
Long & Foster Real Estate, Inc. - Crofton, MD
Maryland Real Estate & Military Relocation

Frank - I thought this was worth mentioning because more and more people are going to find themselves unable to qualify for a new home, having lost their most recent home to foreclosure or short sale.  A lot of retirement age parents are going to be asked to risk their own financial security in the coming years.

Nancy - Exactly!  I'll bet he's one unhappy camper!  I'm a little surprised he didn't step up and help, though.

Oct 13, 2010 12:20 AM
Missy Caulk
Missy Caulk TEAM - Ann Arbor, MI
Savvy Realtor - Ann Arbor Real Estate

Awesome, refreshing post Margaret.

We have gone over this and over this with our kiddo's.

Should I send them this?

Yep

Thanks!

Oct 13, 2010 02:03 AM
Patricia Aulson
BERKSHIRE HATHAWAY HOME SERVICES Verani Realty NH Real Estate - Exeter, NH
Realtor - Portsmouth NH Homes-Hampton NH Homes

Hi Margaret,

Thanks for the "heads up"  on this.

Oct 13, 2010 02:28 AM
Margaret Woda
Long & Foster Real Estate, Inc. - Crofton, MD
Maryland Real Estate & Military Relocation

Missy - Haha... you and I have both seen this situation in action over the years, haven't we?  I don't think it mattered as much 20 years ago as it does now - for one thing, we didn't have credit scores in those days.  For another, it's so much harder to qualify for a loan in 2010 than it was in 2000.

Patricia - So many more people are likely to need co-signers in the coming years because of all the job losses, short sales, foreclosures and even bankruptcies that we're seeing now.

Oct 13, 2010 03:59 PM