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Don't Co-sign! Make them Authorized Users instead

5/4/2019

If you have done some things right and your financial house appears in order, a relative will ask you to co-sign a loan for them. Co-signing is only one of the ways available to help your credit-challenged relative. There are other ways that may deliver the desired results with less exposure and risk for you, especially with a little bit of planning.
Let’s look at your options and so you can make an informed choice about co-signing. When you co-sign you become a JOINT account holder. Each and every member on a joint account agrees to be individually responsible for 100% scheduled repayment of the outstanding debt regardless of the other members' payments or promises. When you co-sign if a payment is missed, your credit score will receive the full negative impact of the late payment.
This could be catastrophic if it compounds an already diminished credit score. No doubt, the new co-signed loan’s high-balance-to-limit ratio, and short history have already reduced your credit scores several points. That happened just by signing up; missed payments or not. So be prepared to take a credit score hit when you co-sign.
How long will it take your score to recover from these factors assuming a pristine repayment history? The answer depends on several factors. Credit scoring is an art and a science. Whatever calculations the algorithm conjures to determine our scores, the following is empirically factual for every credit score. They go down a helluva lot faster than they rebound. It is never down one month; up the next for any credit scoring model in existence regardless of the previous history.
If your relative needs you to co-sign to “build credit” then you can also do that by making them an authorized user on your credit cards. If you do, you will almost immediately transfer your credit history to theirs. And without any risk or exposure to new debt for either of you. Now, this strategy will not work for impulse or emergency “gotta have a co-signer or else “ situations. But adding someone as an authorized user can be the gift that keeps on gifting. As with most successful credit score improvement strategies, the more time you give this one, the better.
But the gift isn’t for everyone. Here are six questions whose answers will help you decide if your situation is a fit for the authorized user strategy:

Can the authorized user be added to “good news only” tradeline?
1. Ratio ** less than 30% balance to limit
2. Payment history ** On time every time
3. Length ** Longer the better
Who can be your authorized user?
1. Check the CC policies
2. No age limit
3. Anyone you decide
4. No credit check
What are the rights and responsibilities of an authorized user?
1. Not responsible for debt or payments
2. Can charge up to account limit without further approval
3. Adhere to relevant portions of the credit card agreement
What are account holder’s duties, rights, responsibilities, and exposure?
1. Maintain an unblemished tradeline for both ratios and payments
2. Control access to credit
3. Monitor account
4. Remove authorized user before negative impact event reports
What are the authorized user’s qualifications and duties?
1. Fully trustworthy with access to your credit card limit
2. Appreciates the privilege
3. Maintains your security and trust
4. Not curious
5. Gets off the account ASAP!!
How to add an authorized user safely?
1. Don’t give them a card
2. Don’t give them the account number
3. Notify them when they have been added or removed

Pro-actively adding authorized user to your credit card accounts can be an effective MoneySmartLife strategy and give a good credit legacy to your offspring. It is part of monitoring/mentoring your children’s credit. Having good long-term authorized user tradelines on the credit reports means they are more likely to be approved without the need for a co-signer when they apply for credit.
Good credit grandparents can leave good credit legacies safely to multiple generations since there are rarely limits on the number of authorized users. Just make sure that each of the six questions has the right answer.

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2 Steps to a Great Credit Score

11/15/2018

Everyone can have a great credit score (750+.) How long it takes depends on from where you start. It will take a person with a 450 score longer than a person with 620. And both longer compared to a 720 score. But it can be done. The journey of 1,000 miles begins with the first step. Here are 2 steps to having a great credit score.

Step One STOP putting BAD news on your credit report.
If you do nothing, your credit will clean itself up in 7 years. The Fair Credit Reporting Act (FCRA) requires that.

Once you commit to improving your credit score start paying your bills: On time; Every time; All the time. Just one late payment can be devastating to a credit score for a long time. So, no more late payments--pay your bills on time--every time.
Improve credit utilization ratios. You can do this by reducing debt and/or raising credit limits. Your credit utilization ratios significantly impact your credit score in both the Trended Data and various FICO credit scoring models; independent of your payment history.

Step One will “clean” your credit report of all negative references in a maximum 7-10 years depending on the negative tradeline type. But a clean report is only part of having a great credit score. You can take Step Two before you complete the first. And you should. Especially if you had a bankruptcy in the last decade.

Step Two Put some good news on your credit report. Gotta Do It!
Current positive tradelines on your credit report have a greater impact on improving your credit score than older negative ones. They will improve your score faster and easier than just doing Step One alone. Here are some ways to put positive tradelines on your credit report.

Lend yourself money. Then pay yourself back in a way that reports to the consumer reporting agencies. If you have either no score or a “bad” score you will find it hard to get credit. Financial services institutions are very reluctant to lend money to the “untried or unworthy.” So you must borrow from yourself with the assistance of a financial services instrument such as a (1)secured credit card or (2)self-collateralized installment loan from a credit union, bank, etc or (3)a Credit Builder account from Self Lender. The first two options require you to have money to get started. Self Lender Credit Builder account only requires you to make self-selected on-time payments. You’ll need no money upfront.
Responsibly open and use new types of credit accounts. If you want a great credit score you must proactively manage it. Having and properly using credit when necessary can improve your financial well being. Educate yourself about credit scoring. Know how to move your score on purpose when you need it. Doing so can save you money on interest rates and result in more favorable terms when you borrow.

Bonus Step Repeat Step One and Step Two as needed.

Credit Score improvement Chart

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What Happens to Your Credit Card Debts when you Die?

1/16/2018

Short Answer is that it dies with you IF.....

It is unsecured debt
- Unsecured debt is a loan that is not backed by an underlying asset. Unsecured debt includes credit card debt, medical bills, utility bills and other types of loans or credit that were extended without a collateral requirement.
You are not a joint account
- If you’re a joint cardholder, meaning you co-signed for the credit card, you’re liable for the debt. Now there’s a difference between a cosigner and an authorized user. If you are the latter, you do not have any legal responsibility for debt accrued on the card.
If you are not a co-signor
- If you cosigned the application for a joint account, you entered into a binding contract and continue to be equally responsible for the debt.
No fraudulent authorized by you use after death
There is no estate claim by the creditor

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7 Ways to Reverse a Bad Credit Score

12/5/2017

If you have bad credit be encouraged you can have good credit, if you want it.

Having a “prime” credit score can make a significant beneficial difference in your life. Non-prime credit scores will result in limited more expensive borrowing options, if available at all.

Borrowing from time to time is a reality and necessity of modern financial life. Short-term borrowing costs impact your long-term financial well-being. Your ability to minimize those costs is based on your financial capability. In this adversarial economic system, you can either "play the game" or "be played by the game."

Credit heals itself. If you do nothing on your credit for the next 7 years you will have a clean credit report by law. The only exception would be the 10 years required for a Chapter 7 bankruptcy to clear. But just waiting for the bad news to fall off your report isn’t good enough. You also need to engage the system for your benefit.

Actual Credit Score Improvement Graph

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Is a Balance Transfer Right for You?

11/24/2017

It is difficult to give generalized financial advice. Because everyone’s situation is different and the dollars are in the details. Having said that, here's a look at the benefits of a balance transfer.

A balance transfer is when you move the debt from one debt instrument to another. In most cases, a credit card is the receiving instrument.

Some pros to doing a balance transfer.

The balance that you transfer will payoff an account. The debt did not go away. It moved to a lower rent neighborhood.
- If the reason you are doing the balance transfer is to pay off higher interest debt then it may be a wise move.
- For example, if you transfer to a promotional offer, such as “no interest for 6 months on balance transfers,” it will allow you to pay off debt quicker. Provided you make the same payment you were making on the debt as before the transfer.

Another advantage of a balance transfer is that it allows you to merge payments. It may be easier to focus on one bill as opposed to splitting money between two or more.

Some things you should be aware of when making a balance transfer.

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Don't Co-sign! Make them Authorized Users instead

2 Steps to a Great Credit Score

What Happens to Your Credit Card Debts when you Die?

7 Ways to Reverse a Bad Credit Score

Is a Balance Transfer Right for You?