Golden Girl Finance
 
Stephanie Holmes-Winton
Posts (41)
 
 

Ask the Expert

Q&A: The implications of co-signing for a child

October 21st, 2012 by
 

I got married 3 years ago. My husband is divorced and has a son who lives with us. My stepson started college this year and applied for a student line of credit. I was put in a position where I had to co-sign as I was the spouse of the parent. How can I cover myself financially should he not pay the line of credit?

Asked by Anonymous, Burlington, ON

I'm afraid the short answer is, you can't cover yourself. Unless and until your stepson is acceptable to the bank as a borrower without co-signers, or the institution will remove you as a co-signer, there is nothing you can do. Nothing, that is, except work with your husband to keep your stepson on the straight and narrow when it comes to paying back that debt.

The very thing you are worried about is why I hate to see parents co-sign. I've seen this very scenario go terribly wrong many times. You've signed saying that this loan will ultimately be your responsibility too!

As this student debt builds (if it does), you and your husband could lose your own borrowing power, due to the fact that these co-signed loans often show up as your loans on your credit. With this in mind, here is one thing you can do right away: go online and pay for your credit score (not your report) and see if your stepson's student loan shows up on your credit bureau.

If I were you, I'd want online access to the loan itself so that you can monitor its use and payments. I would also find other ways to help your stepson fund his schooling going forward; this might include government student loans, bursaries, scholarships, part-time work, etc. Furthermore, if you and hubby have to back him up, ask yourself what he is doing with those funds he earns from working to reduce the amount he has borrowed? I'd suggest he be required to make payments to you both now; you can tuck it aside and next year when the time comes, you might just be able to avoid the co-signing role. Ultimately, if his choices and efforts now don't have consequences that are his alone, well that's just cruel - to all of you. Good luck.

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Q&A: How do people with such bad credit get approved for more credit cards?

September 25th, 2012 by
 

On debt-focused TV shows, I see couples giving the experts about 16 credit cards...how do they get so many? Isn't their credit worthiness checked before cards are given to applicants - especially as most of the couples hardly ever pay their bills or even open their mail?

Asked by Anonymous, Toronto, ON

 

What a good question. I think there are several ways these massive collections of credit cards build up. For one, there are generally two people on these shows (a couple), so let's assume they each have 8 cards - still bad but not as staggering. Also, it is likely that the card collection consists of two or three major cards each, plus a serious assortment of specialty store credit cards (which many people apply for on the spot to get the "discount" or "special deal" of the day). Furthermore, many no-payment, no-interest deals are actually credit cards, too.

As the individuals rack these cards up (especially if there are a few with no payments at first), it generally takes until they reach the point of a significantly large minimum payment before they stop paying. By that time, it's too late: the credit has already been extended and used based on the facts at the time of the application, and not the cumulative disaster in the end.

The number of times that you apply for new credit in any given year does affect your credit score, but if you already have a few cards, you could easily collect a few more.

Also keep in mind that television almost always involves at least a touch of "over the top" drama to keep our attention!

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Q&A: The after effects of a consumer proposal

September 24th, 2012 by
 

I filed for a consumer proposal in January of 2008. I finished and paid in full by September of 2010. I have received a Certificate of Full Performance of Consumer Proposal and am wondering if I should send a copy into one or both of the credit report companies? My credit score has improved (in 2011, it was 484; it is now 650 in 2012). Also, I'm wondering how long 'derogatory' items last after the consumer proposal?

Asked by Anonymous, Winnipeg, MB

 

First of all, good work - those are great improvement on your credit score. As long as you keep your payments up on any new debts, the 'derogatory' items will stay with your credit bureau for 7 years. If you start missing payments on any debts, this period could last longer.

Take advantage of your fresh start by working hard to manage your cash flow and proactively grow your credit score. Check out my past Q&As on this site for more information on these topics.

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Q&A: Should I cash in my RRSPs to pay down debt?

May 24th, 2012 by
 

I am currently drowning in debt. I have consolidated 3 times already, but find myself sinking again; it is taking a toll physically, mentally and emotionally. I have money in RRSPs and this could alleviate a huge chunk of my debt. Is withdrawing money a good idea?

Asked by Anonymous, Ottawa, ON

 

No! Generally my answer is that you should not withdraw RRSP money to pay down debt. This is because RRSP money will be 100% taxable at your tax rate (or higher if the withdrawal pushes your income into the next bracket).

If you are on your third consolidation, this is evidence that you cannot afford the life you are trying to lead. So whether you've got to downsize your home, rent rather than own, or drastically change some spending habits (or all three), you must do it. At this point, you've got to be ruthless and make some drastic changes.

Here are some things you can try to get started...

  • Measure everything. Write down all of your expenses and add up everything you pay for housing, mortgage/rent, utilities, property taxes, insurance etc. Then figure out what your housing is as a percentage of your net income; we are using your take-home income because that's what you really have to spend. Next, do the same with other categories: food, fun, transportation, investing, other debt, etc. Now look at your total monthly expenses as a percentage of your income. Are you over 100%? You shouldn't be.

  • Sell it or cancel it. Consider selling things you can't afford to keep. This might even include your home if your housing costs are driving up your expenses to the point that you have to repeatedly consolidate. You may need to cancel services that are driving up your costs. Nothing is sacred and what you can't afford is dragging you down; free yourself and let those things go.

I hope you find these ideas helpful. Above all else, don't repeat history and make the changes you need to live a financially viable life today.

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Q&A: What to do when you have no credit report or rating

March 27th, 2012 by
 

I have worked all my adult life and have been married over 35 years; we own our home. We have a small line of credit with the bank and investments within RRSPs at a reputable firm, among some other investments. A few weeks ago, I was approached while grocery shopping to apply for a grocery store credit card. We already have Visa and American Express, but I decided to apply. I just got a response back declining me! As the letter suggested, I inquired with Equifax as to the reason. It seems I have no credit report or rating!!! My husband and I do have joint financial arrangements, but I always thought this contributed to my record as well as his, as I certainly have contributed equally over the years and currently am the only one actually earning an income over and above our pensions. What should I do to correct this situation for now and in the future?

Asked by M.K., Surrey, BC

 

The first thing you should do is find out if there has been an error. Mistakes do happen. A store credit card, for example, could be the product of a more obscure lender; they may have different procedures and rules. However, if all your debts are jointly held, someone is the "primary" borrower at least as far as your credit is concerned. You MUST have your very own credit card and other debts that you and only you have applied for to create your own credit score. Even if you've got a card with your name on it, if it's connected to an account where your husband is the primary borrower, you won't get any credit for your credit. Things like contributing to your RRSPs, paying your regular household bills and paying your mortgage on time won't actually contribute to your credit score.

First, go to Equifax directly to find out if there is an error. Then get your credit score. You can also get that from Equifax's website. It's important that it is your score and not your report. Your score will cost you a few bucks, but it's worth it to really see what a lender might see. In your case, I'd recommend you do the following steps and then check your credit every few months until you see it in the high 600's or 700's:

  • Apply for your own credit card BY YOURSELF - with no one else's name or signature to guarantee it. Get a major credit card like MasterCard or Visa. Start by going to your bank to ask for an application. Tell them what is going on to see if they can shed any light on the situation. Get a secured card if you have to. This is where you have to put cash on deposit to get the card, usually an amount equal to the limit.

  • Start using the card. The most efficient way to use this new credit card would be to automate a regular monthly payment or two. A utility or subscription make great regular payments; you can predict their exact cost and you would have paid them from your bank account anyway. Make sure the total payments you plan to use the card for don't exceed 35% of the limit. For example, if you've got a $1000 limit, don't have more than $350 of charges on the card at one time. Then call the credit card company, give them your banking details, and have your card set to pay itself off on the due date each month, automatically from your bank account. In this way, you aren't spending any more money than you would have, since not carrying a balance means paying no interest - but you can show you are capable of using credit.

I hope this helps. Whatever you do, keep an eye on the score and don't stop asking questions if you've got a credit card in your name only that isn't reporting to Equifax; have them rectify that right away! And for anyone reading this who doesn't have their very own card (not a dummy card off their spouses account), please get your own card and keep an eye on your credit score at least once per year.