Erica Sandberg is a prominent personal finance authority and author of “Expecting Money: The Essential Financial Plan for New and Growing Families.” She writes “Opening Credits,” a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.
Dear Opening Credits,
I helped my son when he was in college by co-signing loans and also co-signing for a car. He now has a job and has been paying his loans and car note on time for the past two years. If he refinances his vehicle in his name, how can it be removed off of my credit? The student loan lender told my son I would be removed after two years of payments. How quickly will these two items be taken off my credit, or are there steps I can take to assure they are removed? — Lorraine
Let us not forget what a credit report is. In essence, these documents are nothing more than a record of what you — the consumer — have done with any funds that you’ve borrowed or legally owe. As long as the entity that you’re doing business with or are indebted to are allowed to report information, they may choose to do so.
For example, if you owe the federal government for back taxes, the IRS may send notice of a lien to the credit reporting companies. If you didn’t pay child support when you should have, that arrearage will probably end up on your report.
And if you signed your name for a credit card or loan product — whether as an individual or as a joint owner — the bank will post the corresponding data to the credit reporting agencies.
Therefore, you can know if information should be on or off the reports by asking these questions:
- Is the data correct? If so, it will be listed.
- Is the data positive? If so, it may be listed indefinitely.
- Is the data negative? If so, it may be removed after a set period of time.
As a co-signer, you and your son went in on the car and student loans equally. That duel ownership is noted on your reports, as is how he’s managed them thus far. If your son continues to pay on time, your credit reports will look good. There is nothing wrong (and everything right) about that. It helps both of you appear responsible and enhances your credit scores. However, if there are missed payments, evidence of the delinquency will remain on each report for seven years from the date it took place.
But what happens to the co-signer when a loan is refinanced? If another bank buys the balance and only your son’s name is on the new account, it will be his entirely. Your credit report will reflect that the account is satisfied and closed. Evidence of the previous loan may continue to appear because the data was correct and positive.
Some lenders that offer private student loans do allow co-signers to be removed from the agreement when certain conditions are met. It could be after the student reaches a specific age or has established a great payment history and now qualifies for the loan on his own. At that point you would be absolved of co-signer duties and liabilities, and the debt would no longer be listed on your credit report.
To make sure your credit files are updated, check your reports (which you can do so for free, once a year, at AnnualCreditReport.com). If information is on them that shouldn’t be, just dispute the item with one of the three big credit bureaus (Experian, Equifax and TransUnion). It has 30 days to investigate and if it finds that you are right, all three of the bureaus are required to correct the data.
It sounds as though your son has been taking the right actions with the amount of money that he’s borrowed. So far, he’s paid some back and respected the contract. That’s great. His record of managing credit will benefit him as he becomes a fully autonomous adult.
Co-signing accounts is a gamble that I rarely recommend, but in your case all seems to have gone well. So far your credit has been affected, but in a sweet rather than sour way.
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