Will my credit score drop if I take over my friend?s troubled internet account?
It depends on whether it's a line of credit or a utility service account
Steve Bucci has been helping people decode and master personal finance issues for more than 20 years. He is the author of “Credit Management Kit For Dummies,” “Credit Repair Kit For Dummies,” “Barnes and Noble Debt Management,” co-author of “Managing Your Money All-In-One For Dummies” and “Debt Repair Kit For Dummies” (Australia). Steve is an experienced expert witness in identity theft, credit scoring and debt related cases. He has been a presenter at the FICO InterACT Global Conference, the Federal Reserve and the International Credit Symposium at Cambridge University in the UK.
Will my credit score drop if I take over my friend’s troubled internet account?
If the company is extending credit to your friend in some fashion, and the account is being legally transferred to you, that could damage your score for a while. But if you're taking over a utility account, you may only see a small, temporary credit score hit from a hard inquiry.
Dear Keeping Score,
My friend has an account with an internet company with late payments that are on her credit report. The account will soon be transferred under my name. Will the full credit history be transferred to my credit report and therefore the late payments will show on my credit score?
Ah, the things we do for those we care about! I will not tell you not to do this, but I’m glad you’re thinking it through before you commit.
What I can’t tell from your email is if the internet company you refer to is a utility, like an internet service provider (ISP), or just a company that does business on the internet. The answer will come down to whether or not the company is extending your friend credit in one fashion or another. I will answer the question both ways, but it will be up to you to decide if you go ahead or not.
If the company is extending credit to your friend and regularly reports to the credit bureaus, the consequences will depend on what is really meant by “taking over” the account. If the contract is being legally transferred, as opposed to a new account being established and reported, then the history of that account – including those delinquencies – would likely transfer as well. This could affect your score somewhat, depending on how old the delinquencies are. If a new account is established for you then the history will not be reported and there will be no credit scoring reduction.
If the company is an ISP or a utility, then the only data reported to the bureaus would be collection accounts. A collection notation is what is known as a terminal designation. It is reported once and that’s it. There are no further updates. As a result, there would be nothing active to transfer to your account as the ISP would not report anything on an ongoing basis.
Tip: Who can furnish payment information to credit bureaus? Banks, credit card issuers, lenders and collection agencies can do this, but friends and family members who lend you money can't. In some cases, utilities and telecommunication providers may be able to report negative items to the bureaus.
Transferring billing responsibility to you is a relatively painless process, but you will have to let the company run a credit check on you. This will be considered a hard inquiry and will affect your score somewhat in the short term. It won’t be a huge hit, but if you have only a limited credit history the impact will be greater than if you have many existing accounts in your profile.
After the initial drop, your score should recover fairly quickly provided you keep your credit nose clean over the next few months. Try not to open any other new accounts and, for heaven’s sake, don’t miss any payments. Payment history is the number one factor in credit scoring and that is completely under your control.
Debtor can’t walk away from an account in arrears
If you go ahead with the transfer, you will have to be sure that the account is now in good standing. You won’t be able to transfer the account if it is not. Creditors don’t let a debtor off the hook until the account is paid up. If the account is in arrears, they may let you join your friend as a co-owner, but they won’t allow the current owner to walk away.
This way they have two people responsible for the debt, not just one. That’s better repayment security! So, this means the account must be paid up and current at the time of the transfer. The fact that there are prior late payments on the now current account should not affect a transfer of billing responsibility.
When you take over someone’s account, you are agreeing to the terms that they agreed to in the beginning. So if there are two years left on the contract, you are agreeing to that time frame. If there are any installment payments being made toward equipment, those terms will also stay in place. By assuming ownership of the account, you will take over the responsibility of the monthly bill and contract.
You will have to wait to make any changes to the service until the contract is up, of course, so keep that date in mind. Services of this type should always be reviewed toward the end of a contract to be sure that you are getting the most bang for your buck. Right now you are stuck, but you don’t have to stay there forever.
A better option: Just make payments on the account
You do have another option here. If you choose to simply start making payments on the account, it wouldn’t affect you at all. If the internet company is not a utility and you are added as a joint account holder, the past delinquencies shouldn’t appear, but the history going forward would.
Here’s what you need to know from a credit scoring point of view. Credit scores are developed using data in each individual person’s credit report. If you simply take over making payments and don’t transfer the account, those late payments will remain associated with the current utility payment record.
Right now, it is the exception rather than the rule for utility payments to be reported to credit bureaus. However, Experian (and I imagine others will follow) is about to begin adding utility and cell phone payments to their credit reports in the first quarter of 2019. When this happens, it will be voluntary and only positive data will be reported.
I suspect you are doing your friend a favor here by taking over the account, but you want it to be good for you, too. Simply taking over the payments until the contract is up might be the best option for you.
Remember to keep track of your score!