Nothing can sour a relationship faster than abusing trust — and when it comes to credit, it can happen by accident. A friend does you a favor, and then what should have been your problem somehow becomes theirs.
Damaging someone else’s credit is easier to do than you might think, and repairing trust can be difficult — and undoing the accidental credit damage all but impossible. Here are four ways you can hurt someone else’s credit.
1. Getting a Ticket While Using a Friend’s Car
A Credit.com reader recently told us how he borrowed a car from a friend, got a parking ticket, neglected to pay it … and it was sent to collections. His mistake, but his credit didn’t suffer for it.
But his friend’s did. It resulted in a collection account on the car owner’s credit reports. And a collection item is a giant problem — it could keep his friend from getting a mortgage or result in a higher interest rates if he is able to get one approved. Add to that the fact that some insurance rates are also tied to credit scores, and you have a problem. (Parents of young adults take note: Unpaid parking tickets have derailed refinances when would-be borrowers discover their credit scores are much lower than they thought because of a collections or judgment they knew nothing about. So, yes, even though you were unaware of the beach trip your adult child took, your credit could take a hit.)
2. Failing to Repay a Co-Signed Loan
Whether it’s a student loan, car loan or an apartment lease, when someone co-signs for you, they are agreeing to pay the whole debt if you don’t. And it seems reasonable to assume that if you were the primary borrower, both you and they expect you to pay. If you are going to be late with a payment, let your co-signer know. He or she may decide to make that payment for you rather than suffer the consequences to their credit scores (or have fees and penalties added to the amount owed). If the loan is written off, it will hurt your co-signers’ credit. They may also get the dreaded 1099-C and may owe taxes on the amount of the unpaid loan.
3. Borrowing a Library Card & Never Returning the Book
Though the rules are scheduled to change on this, as of now, if you borrow a friend’s library card or book and forgot or neglected to return the book on time, they may end up with a balance that could wind up in collections. Even if you are married to the person the library thinks owes the overdue fines, if they are sent to collections, that big negative goes on his or her credit reports, not yours.
4. Abuse Privileges as an Authorized User
If you are an authorized user on someone else’s credit card, be sure you are clear on what expectations are on how much you can charge, and when. Credit scores take into consideration the amount of debt relative to the credit limit on the card. It’s important to keep the balance to less than 30% of the limit, and it’s best to keep it to less than 10%, particularly if you are looking to build your score.
If you’ve been the recipient of a friend’s trust in the ways outlined above, it’s important to realize that even seemingly little oversights (the library book that slid way into a dark corner of the trunk) can have big consequences. As irritating as it can be when you have only yourself to blame for a credit misstep — and we all make them from time to time — it can feel even worse when someone else has to face the consequences.
And if you’re the friend who’s co-signing and letting others use your cards, first we can’t caution you strongly enough on the co-signing. If you do it, see if you can get access to the account so that you can check to see that payments are being made on time. It’s also smart to check your credit regularly (you can get a free credit report summary, updated monthly, from Credit.com). That can let you know early that something is amiss — whether it’s a friend’s misstep or fraud — and allow you to address it quickly and limit the damage.
More on Credit Reports & Credit Scores:
- How Do I Dispute an Error on My Credit Report?
- What’s a Bad Credit Score?
- How Credit Impacts Your Day-to-Day Life