Weigh the risks before agreeing to co-sign.
Many consumers think when they co-sign for a loan, it is simply like giving a reference or vouching for someone. In legal terms, it means “you are being asked to guarantee someone else?s debt when you co-sign a loan,” the Federal Trade Commission wrote on its consumer rights Web site.
“If you co-sign a loan, you are just as responsible as the borrower for the debt,” said Patricia Rudolph, a member of the National Association of Personal Financial Advisors from Columbia. “If the borrower defaults, you will be expected to pay.”
Some credit agencies even have the ability to collect from a co-signer immediately if a borrower misses even one payment. The Federal Trade Commission indicates that the situation can get even worse if a lender decides to sue to collect the money. This can include late charges or attorney?s fees.
When a consumer is faced with the decision to co-sign, both Rudolph and the Federal Trade Commission have several tips to remember. These include making sure you have the capability to repay the loan yourself and knowing that the liability associated with co-signing might affect your own ability to get a loan.
Another helpful tip is to have direct contact with the lender yourself. You can obtain a copy of all legal documents associated with the loan, understand the process of what happens when a payment is missed and learn how to obtain notification if such an event should occur.
“The lender is not required to notify you, but some lenders are will to do that,” Rudolph said.
One practice that has become more common is renting out “authorized user” slots on credit cards. According to MSNmoney.com, many credit agencies would find consumers with good credit, and then pay them a monthly fee (more than $100) to allow someone to “sign up” as an authorized user (sometimes charging close to $900) on their card.
This would serve as a way to boost up a credit score artificially for people with poorcredit who would “buy” some of the slots. Known as “piggy-backing,” this process will most likely be short-lived as it is anticipated that the FICO credit score formula will change to take this practice into account.
