The Consequences of Co-signing a Loan
My husband co-signed a $9,000 loan for my sister-in-law and did not tell me about it until after the fact. He recently got a letter telling him that the loan is in default. How will this default affect my credit report and score?
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If a loan goes into default, the co-signer -- in this case, your husband -- is on the hook and the lender can report the default on his credit record even though he isn’t the primary borrower. But the good news for you is that your husband’s report and score are totally separate from yours. "If your name was not included on the loan document, then the account would not be reported for you," says Maxine Sweet, vice-president of public education at credit bureau Experian.
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The bad news? Not only is your husband equally responsible for the debt, but the default on his credit report can also bump up the rate on any loans you and your husband apply for together, such as a house or car, for the next seven years (for more information, see our story When One Spouse’s Credit Score Is Lower). And the outstanding debt may also affect his debt-to-income ratio, which could make it harder for him to qualify for new loans, says John Ulzheimer, president of consumer education at SmartCredit.com. The lesson: Never co-sign for anyone unless you’re prepared to pay the loan yourself.
Got a question? Ask Kim at askkim@kiplinger.com.
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