Helping my sister-in-law build her credit by co-signing on an account

[mac5u]

Will this be an immediate blow to my own Score?

I have decided to try and help my sister-in-law re-build her credit by co-signing on an account.  I am going to order her credit reports but I am certain she's in pretty bad shape.  

She's had some collection accounts stemming from debt she incurred from school, a medical liability that she could not pay, and she once bought something online, did not like the product but could not get the company to issue her a RMA number, so she left a portion of the bill unpaid.  

Except for the online purchase, I helped her pay off the collection accounts.  There may be some charge-offs too but I won't know until after I review her reports.

No credit cards at all.  She lives with her sister and me - about 6 years now.  She doesn't own a home, never has.  

Since she lives with us, she sometimes drives our vehicles and will put gas in as needed.  I am thinking why not get her a joint gas card, make her primary on the account?  I can set the credit limit low, and since I pay for the gas anyway by usually reimbursing her, I am already paying for the gas purchases.  

My own scores are in the mid-700s.  Will co-signing on a card with someone who has bad credit have an impact on my own scores? Assume the card is paid on time, never late.  I might carry a small balance from time to time as I have read somewhere that never carrying a balance can hurt one's score.  The goal here is to begin the process of helping her establish a good credit rating.

[ptilda]

Why not set her up as AU, but not give her the card? I know people go through hard times, but it sems from your post that she got herself into the bad score, and settng up AU without her having a card will protect you. 

[alyssamarie]

I was also thinking that adding her as an authorized user seems like a safer choice, that way you have total control over the card and it should still help her credit.

[benandjerry]

+1 

Help her out by adding her as a AU, but don't give her the card for it. Keep full control of her activity on your account instead of exposing yourself to possible bad credit behaviour.

[jaraico]

and in no way adding her to your account does her baddies affect you

[guiness56]

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@mac5u wrote:

Will this be an immediate blow to my own Score?

I have decided to try and help my sister-in-law re-build her credit by co-signing on an account.  I am going to order her credit reports but I am certain she's in pretty bad shape.  

She's had some collection accounts stemming from debt she incurred from school, a medical liability that she could not pay, and she once bought something online, did not like the product but could not get the company to issue her a RMA number, so she left a portion of the bill unpaid.  

Except for the online purchase, I helped her pay off the collection accounts.  There may be some charge-offs too but I won't know until after I review her reports.

No credit cards at all.  She lives with her sister and me - about 6 years now.  She doesn't own a home, never has.  

Since she lives with us, she sometimes drives our vehicles and will put gas in as needed.  I am thinking why not get her a joint gas card, make her primary on the account?  I can set the credit limit low, and since I pay for the gas anyway by usually reimbursing her, I am already paying for the gas purchases.  

My own scores are in the mid-700s.  Will co-signing on a card with someone who has bad credit have an impact on my own scores? Assume the card is paid on time, never late.  I might carry a small balance from time to time as I have read somewhere that never carrying a balance can hurt one's score.  The goal here is to begin the process of helping her establish a good credit rating.

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As long as the bill is paid on time with no missed payments, no, your score would not be impacted.  Except for the initial hits of the HP, AAoA and when the TL reports.  But those would recover quickly.

She could apply for a secured card.  They work just like a normal non-secured.

Have her join a CU.  They have better rates and are more friendly than banks.

If the goal is to help build her credit and score and she cannot get a secured card, I agree with becoming an AU on your account,.  You don't need to give her a card and it will help her score. When she is able to get a card or 2 in her own name, you could have her removed..

[chwebb1]

I would also say go the AU route and don't give her the card. She could run up a big bill if you give her the account, and it would affect your credit.

[mac5u]

Thanks for the responses.  I had considered adding her as an authorized user but it doesn't have the same impact with the credit bureaus, does it?  I mean, sure she'll have a record of having a credit line, but it won't have the same import has if she were primary, would it?

I am not too worried about her continuing to be irresponsible.  She has been with us for 6 years now and she has really changed.  Besides, setting the credit limit low means that things can't get too outta hand.  Again, it is a gas-only card so it's not like she could run off to a department store and use it unwisely.

I have thought about a secured card - namely Capital One and USAA.  Do they report to credit bureaus?  I imagine so but not sure....

[guiness56]

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@mac5u wrote:

Thanks for the responses.  I had considered adding her as an authorized user but it doesn't have the same impact with the credit bureaus, does it?  I mean, sure she'll have a record of having a credit line, but it won't have the same import has if she were primary, would it?

I am not too worried about her continuing to be irresponsible.  She has been with us for 6 years now and she has really changed.  Besides, setting the credit limit low means that things can't get too outta hand.  Again, it is a gas-only card so it's not like she could run off to a department store and use it unwisely.

I have thought about a secured card - namely Capital One and USAA.  Do they report to credit bureaus?  I imagine so but not sure....

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Yes, being added as an AU will have the same impact, score wise, as if she was primary.  All the history, payments, utilization, AAoA, will impact her score just the same as yours.  If you were late, it would be on her CR. 

Being an AU can be a very good thing when establishing credit and having a thin file.

Yes, secured cards report to the CRAs.  Most of them will report as a regular card.  Not sure about USAAs.

[DrJim]

I agree with everyone else about adding her as an AU.  I will NEVER co=sign for anyone.  My children have asked, and I have found different ways to help them other than to be a co-signer.  All it takes is them being irresponsible one month and my credit gets dinged .  I will give them gifts, but never a loan.  I will add them as AU's, teach them about credit, give them advice, listen to them, but never, never, never co-sign.  It can really screw up family relationships.  In my profession I have seen it tear families apart.  Not a good idea.

But she's your sister-in-law, so help her out by all means (sounds like you already have) but find ways that are healthy, keep your relationship intact, and protect you and your immediate family.

Sermon ended.