Q: My husband and I would like to refinance our house. We put in an application and everything seemed like it was going well.
But once all the paperwork was in, the loan officer told us the loan wouldn’t be approved because my husband had cosigned my daughter’s student loans and she hadn’t made the payments for about four months.
In August, she told us she talked to the student loan lender and had set up a payment plan where she would pay $150 each month, and they would take the four months of missing payments and put it at the end of her loan. Her new payment plan started in September and we tried to refinance in October.
We are wondering if we should try to find another loan officer or if everyone is going to tell us the same thing.
I don’t want to pay a high interest rate on our loan, so how long will it take our credit history and credit score to recover from this event? Also, is there any way my husband can get his name off of the student loans?
My husband also put our daughter’s car in his name because the car dealer said my daughter’s credit would improve if we co-signed her car loan. Can we get his name off of that as well? She was making those car payments regularly, but then last month she didn’t make the payment and by the time we found out, the auto loan lender said they had already reported it to the credit reporting bureaus.
What can we do?
A: Unfortunately, you’re experiencing the pitfalls of co-signing payments. In trying to help out your daughter, your husband put his credit history on the line. Your daughter blew it by simply not paying her bills on time, and has severely damaged not her only her own credit, but yours.
What did she think would happen if she didn’t make these payments? Clearly, she, like many new college graduates, doesn’t understand the relationship between credit, creditors, credit histories and credit scores — much to your detriment.
If you don’t pay at least the minimum due each month (in full is better, of course) on time, your creditor will report you as a “late pay.”
It can take up to 2 years to recover from one late pay. Your daughter has several, including one that is at least four months late. I wouldn’t be surprised if your husband’s credit score is in the low- to mid-500s at this point.
But you should find out. Your husband should pull a copy of his credit history and score from www.annualcreditreport.com. The copy of his credit history is free, and it will cost $6.95 for each copy of his credit score he pulls. (Pulling the report will not be reported as a negative on your credit history because you are pulling your own credit as opposed to a prospective lender or creditor.)
In terms of getting your husband’s name off of your daughter’s student loans, I’m not sure you can do it without consolidating the loans. Call the lender to see what, if anything can be done here. As far as the auto loans go, your daughter would have to refinance her car loan. Given that she has trashed her credit history, that may not be possible at the moment either.
You need to sit your daughter down and start explaining the credit facts of life to her. If you need a refresher course yourself, please visit www.myfico.com, which is a joint venture between Equifax, one of the leading credit reporting bureaus, and Fair Isaacs, the company that created the concept of a credit score. The facts of a solid credit life are these: You make every payment on time, and if possible, in full. If you can’t pay off a balance in full, you must at least make the minimum payment due each month, and pay that on time. Never carry a balance that exceeds 25 percent of the maximum credit limit on the account. And, never charge what you can’t pay off – living beyond your means is a recipe for disaster.
If for some reason your daughter can’t figure out how to make her $150 monthly payment, then she needs to call you so that you can protect your credit history from further negative information. But I don’t like the idea of you bailing her out. If she’s unable to remember to make her payments, she needs to set up an automatic deduction from her checking account, or sell the car and use public transportation.
Right now, she needs to make every single payment on time — no excuses. She needs to take the time and go through the trouble of double checking to make sure the payments have been received by the lender or creditor and are being reported to the three credit reporting bureaus.
All of this money nonsense means you should probably put your refinancing on hold for now. Depending on what your credit score looks like — and it can’t be good — all legitimate lenders will offer you lousy rates relative to what you can get with a decent credit score.
But, shop around to be sure. I’d look at several of the biggest lenders in the country, especially those that get good marks for excellent service. Try www.jdpower.com to see their survey on mortgage lenders.
Finally, be sure to share the results of your mortgage comparison shopping with your daughter. It’s time she learned what life is like in the real world. Should she continue to be irresponsible in the paying back of her loans, I’d say her future is a bit dim.
Good luck to you and your husband.
Published: Nov 14, 2005