Dad co-signed, I messed up his credit. Now what?
You need to repair the credit and the relationship, says The Credit Guy
Ask The Credit Guy
Dear Credit Guy,
I made a huge mistake. My father had perfect credit -- his score was 780, and I blew it. I asked him to co-sign on a credit card with a $6,000 credit limit. I ran it up to $5,990 and then got laid off from my job. The balance is now over to $7,791 and my father's credit is now down to 500. It's now becoming an issue in the family because he feels as if his house will be taken from him because of his bad credit and now the love is gone between us. Therefore, I talked to the credit card company to see if I could settle the debt, which we did for $3,797. But I also have a friend of mine who has a credit problem company that can remove the derogatory elements from our credit report without paying a dime. Is that legal? If not, what do you think I should do?
Wow! Your letter is a perfect example of why it's usually not a good idea for family members to become involved with each other's finances, particularly in a co-signing situation. I'm sorry to hear your relationship with your father has suffered. I hope once the situation is resolved, you will have a chance to rebuild your bond. To that end, here is what I recommend.
First, let me assure you that your defaulted credit card account will not cause your father to lose his house. Credit card debt is unsecured debt. The only way your father's house would become involved is way down the line if you and he were taken to court for nonpayment. For now the house is safe, that is, as long as he is not having any problems paying the mortgage. FICO credit scores range from 300 to 850. One account should not be enough to drop your father's score from a high of 780 to currently 500. I'd take a closer look at his report.
Settling your account for less than what is owed will continue to be a negative item on your father's and your credit reports for seven years, but it is not as heavily weighted as an unpaid defaulted account. SoThat said, if you have no way to pay the full amount (which would be best for improving your father's credit score) then you did the right thing by going ahead and paying the agreed upon settlement amount.
From your letter it sounds as if you may have already paid the agreed upon settlement with the creditor. If you haven't, then before sending the $3,797, tell the creditor you would like the account to be reported to the credit bureaus as brought current and then paid. Make sure to get this agreement in writing before sending in the money. You may also consider making an appointment with a qualified credit counseling agency to determine your best course of action. Depending on your current ability to repay your debt, your counselor may be able to negotiate on your behalf with your creditor to bring your account current. (Bringing a past-due account current usually requires that you pay all or an agreed-upon amount of past due payments.) Changing the account status to current would mean the creditor would no longer report the account as in default and it would no longer be a negative on your father's credit report.
Other than what I just mentioned in the above paragraph, where the creditor would change the way the account is reported to the credit bureaus, no company, no matter what they claim, can have accurate items removed from your credit report. An item that is reported accurately can only be changed or removed by the company reporting the item, or by the passage of time. The majority of so-called "credit repair" companies are scams and rip-offs.
I wish you luck with rebuilding your relationship with your father. Don't be too hard on yourself; it takes two people to enter into a co-signing agreement.
Take care of your credit!
Todd Ossenfort is the chief operating officer for Pioneer Credit Counseling in Rapid City, S.D. Pioneer Credit Counseling has been a member of the Association of Independent Consumer Credit Counseling Agencies since 1997.
The Credit Guy answers a question about a debt or credit issue from a CreditCards.com reader each week.
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