Your credit history is a major part of your financial life. Even if you don’t think that you will borrow money anytime soon, the information in your credit report can influence your auto insurance rates, whether or not you can rent an apartment, and can even keep you from getting a job.
Keeping tabs on your credit history, and keeping up with the information in your credit report is an important part of protecting your finances. While it’s possible to monitor what goes on with your credit with the help of a site like Quizzle, the reality is that protecting your credit is your job.
It’s important that you protect your credit from others, according to Gail Cunningham, a spokesperson for the National Foundation for Credit Counseling. Here are some of the ways that others can damage your credit — and how to stop them from ruining your financial reputation:
Loaning someone your card
“Sure they promised to pay, but if they don’t it’s on your credit report, not theirs,” Cunningham says.
When you hand over your card, you are offering the other person access to your available credit. They can use as much of it as they wish. If they run up more bills than you can afford to pay, you are still responsible for the balance, since you gave your permission for the use of your credit card.
Someone’s use of your credit card can impact your debt utilization, which in turn can bring down your credit score. And don’t forget about the costs that come if the person goes over your credit limit with your card.
“Don’t ever give someone your credit card, regardless of how desperate their plea may be,” says Cunningham. “You can offer to help them out of the jam, but not by handing over your credit card.”
Maybe you don’t hand over your credit card. Perhaps, instead, you decide to add someone (like your college-bound child) as an authorized user on the account. He or she gets a personal card. However, the reality is that it’s still your account. “The authorized user has charging privileges, but is not responsible for repayment,” Cunningham points out. “Activity is reported in both names.”
This can be a way to help someone else, like a spouse or a child, build credit, but you are still responsible for repayment of the loan. “If they spend recklessly and you can’t repay the debt, it’s a real problem,” says Cunningham.
If you decide to add someone as an authorized user, Cunningham recommends that you set clear boundaries, and carefully watch spending activity online. That way, it’s possible to head off any spending disasters before they get out of hand.
Cosigning a loan
It can be tempting to help someone out by cosigning their loan. After all, you aren’t actually borrowing the money, and the “real” borrower is responsible for repayment. It’s a bit different from adding an authorized user to your credit card, since the bill isn’t coming directly to you when you cosign. Unfortunately, there are major pitfalls associated with cosigning a loan.
“Some people think that you’re each responsible for half of the debt,” says Cunningham. “Actually, each cosigner is responsible for payment in full.”
“All payment activity is reported to the credit bureau in each signer’s name,” she continues, “so nonpayment by the borrower can wreck an otherwise good credit report and score for the cosigner.”
Even if the cosigner pays regularly and on time, the fact that there is debt on your credit report means that your ability to borrow could be hampered. If you plan to make a major purchase with debt (like a home or a car) in the near future, your ability to borrow or get the best possible interest rate could be significantly reduced.
If you decide to cosign, make sure that you set clear expectations for the borrower. Monitor payment, and insist that the borrower talk to you if he or she runs into trouble so that you can salvage your credit. “Only cosign on a loan if you’re willing to pay it all yourself,” says Cunningham. That way, you are prepared for the worst-case scenario.
Of course, it’s not just people you know who can ruin your credit. You might be the victim of identity theft that can cause problems. “Identity theft and scams can damage your credit at least temporarily,” Cunningham says.
Loans taken out in your name can reduce your ability to borrow. Additionally, if a fraudster takes out a loan in your name and doesn’t pay, it can be a fast way to tank your credit.
In order to catch identity theft early, it makes sense to monitor your situation. AnnualCreditReport.com allows you to get a free copy of each major credit report once a year. You can also get access to your free credit scores if something goes amiss with a credit application. Finally, consumer credit sites like Quizzle can help you stay on top of your credit report and monitor a version of your credit score.
Keeping up with these actions can help you see red flags and remedy the situation as quickly as possible. You don’t want others to ruin your good financial name, so take steps to keep your credit in tip-top shape.
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