4 things you NEED to know about Co-Signing and Credit Scores:

By Anselmo Moreno

When an eager consumer doesn’t qualify for the financing they require, they often are advised to seek a qualified “co-signer” to allow them to obtain the loan or credit extension.
Financially, it’s like juggling knives with your eyes closed.
Four things you NEED to know:

  1. Lenders will count this Debt as Yours – this will count against your debt to income ratio as if you were making the payment.
  2. You are not acting as a reference.
  3. You are just as responsible for the repayment of the debt. Translation: if they don’t pay, you will pay it. All of it, not just “your half.”
  4. It will lead to derogatory reporting if its goes unpaid or paid late, and the credit score impact will be just like if you paid late or failed to pay.

Remember: It is a contract you are signing. You are promising that if anything goes wrong; you will pay the balance, plus interest and penalty fees.

If you already are a co-signer, you need to set some safeguards to protect your credit.

  1. Make sure the statement goes to your mailing address
  2. Ensure the finance company knows how to reach you in case anything goes wrong.
  3. Pay the bill yourself, and have your co-signer pay you.

I cannot stress how important it is to pay the bill yourself to protect your good credit. There is a reason why they need a co-signer, and it is because they do not have a good track record of paying their bills on time.

The bank is already telling you that they do not trust that person enough to lend them the money without your guarantee.

I have seen it end friendships, relationships, and make family gatherings extra awkward.

Co-Sign at your own risk!

Credit Scores & Medical Collections – Do they matter?

By Anselmo Moreno

Have you ever been to the doctor or the emergency room and thought your insurance took care of the bill only to find out later through your credit report that it didn’t? In that case, the changes would directly benefit you.

On August 7th , 2014, FICO, the company behind the most commonly used credit scoring system, announced a new generation of its credit scoring formula with some remarkable changes to the way it assesses consumer credit risk. The new scoring system, known as FICO® Score 9, is designed to bypass the presence of paid collections.

Previous FICO score systems significantly lowered a consumer’s credit score if it detected any collection account on the credit report, paid or unpaid. In addition, the new scoring system also treats unpaid medical collections differently. FICO® Score 9 does not penalize a consumer as much for an unpaid medical collection as it normally does for other unpaid non-medical collections.

Since developing the first FICO credit bureau risk score in 1981, FICO has made several revisions to its credit score formulas that bring the system more in line with current trending consumer spending and payment habits. Thirty years ago, consumers didn’t use debit cards, nor was it a common practice to have rent-to-own furniture or access to credit at every single store in the mall. It is easy to see why updating your scoring system is necessary if you are in the credit risk management business. Read More ▸

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