I often get asked for assistance concerning debts that ‘someone else’ – an ex-spouse, roommate, or child -was supposed to pay, but did not. Anyone who cosigns or guarantees a loan for someone else is legally responsible to pay the loan. The lender is not required to send late notices to the cosigner or guarantor – they send notices only to the address of record. If you have a joint debt with another person and the address of record is not your address, you may never know that your credit is being affected in a negative way. Often, the first sign of trouble is when a notice is received from a collection agency. By then, the damage is done – the loan is seriously past due, and the cosignor or guarantor has a slow pay noted on their credit report. In the worst case scenario, the debt is for a car, and the other party has disappeared to parts unknown with the car – leaving the cosignor with bad credit and no car. The more common situation is where a parent or grandparent cosigns a student loan, but their child/grandchild does not make the payments and does not tell the parent/grandparent that they cannot afford to pay the loan.
Be very, very careful when you are asked by a friend, fiancee, or relative to cosign or guarantee a loan. If you part ways with the person you cosigned for, the bank or creditor is not required to let you out of the contract. The decision to cosign a loan could end up being one of the worst mistakes of your life. If you do cosign or guarantee a debt, be sure to keep a close watch on your credit report.