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Can I Help My Daughter Rebuild Her Credit?

 
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May 14, 2013
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QDear Erica,

My daughter's life got messed up in her divorce. She co-signed some loans (totaling more than $15,000) with her dirt-bag of an ex-husband, so she can't get loans and credit cards she needs to get her life back in order. She didn't have a job when he left her and is still looking. I want to help her, but my wife has a problem with me just giving her money, so I was wondering the ways I could help her out credit-wise. Would you recommend I share a card with her in some way? Would my good credit help boost her bad credit? Would her bad credit affect mine in any way? – Raymond

AHi Raymond,

It would be so wonderful if we could go back in time to change not just our own past mistakes, but also those of our loved ones. Your daughter made a bad decision, yet how was she to know? She not only married the wrong man, but co-signed loans with him. Regrettable decisions, to be sure.Ask Erica

Most of the time, joint credit arrangements between spouses, whether for loans or credit cards, work out just fine. As long as both people treat the accounts well, all parties benefit. The bank reports the positive activity to the credit bureaus, and that activity is then recorded on the credit reports of each owner.

However, sometimes, all does not go according to plan. For example, the person who was expected to manage the account fails to do so and the loan goes delinquent. Does the lender care which rightful owner messed up? Not at all. As far as they're concerned, the amount owed was either paid or not paid, and each owner is 100 percent liable. The negative information will show up on and cause damage to both people's credit reports.

If the lender chooses to sue for the unpaid debt, it may drag one or both of the account owners to court. The divorce is irrelevant. If your daughter signed the contract, she's equally and permanently responsible for the money owed.

So how can you help your daughter now? You could co-sign a new loan or credit card for her. Her credit reports and scores would improve with positive use of that account.. And no, her credit history will not transfer to your credit reports, but the payment history on a co-signed card with you will.

Still, I don't recommend it. You would put your good name and finances on the line. As you can see from what your daughter has just been though, joint ownership is risky. By sharing an account with her, you lose control. I'm not implying that she will charge the card up and then not pay, but that it's a possibility — and a gamble. And if she were to do such a thing, you'd be held accountable, and your credit rating would sink if the situation really went south.

From what I see, you have three better options:

  1. Be the lender. While I'm not usually in favor of a parent acting like a bank, if you believe that your daughter will pay you back, you could offer her a loan so she could get back on her feet. I understand that your wife objects, but if your daughter were to secure the loan with something of value, it could give confidence that the money would be repaid.
  2. Be a benefactor. You could just gift your daughter a specific sum and be done with it. With a cash grant, she could repay the bad loans left by her ex, which will help her credit.
  3. Be the parent. Lastly, you can just say you're sorry, but she'll need to figure her own way out of this mess. You'll support her emotionally, but not financially.

The direction you choose ought to be based on your father-daughter relationship, your knowledge about her character — and, hopefully, a healthy amount of caution about sharing credit.

Got a question for Erica? Send her an email.


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