Welcome to Fix My Finances, Yahoo Finance’s personal finance series. Each episode, we take a look at one viewer’s financial state of affairs and offer advice, insight and information on a variety of issues, including how to save more, spend less and pay off lingering debt.
This episode we spoke with Sina, a 29-year-old soldier in the US Army with a wife and three daughters. Sina, who was deployed to Afghanistan, now lives with his family in Hawaii. His financial issues stem from trying to help a friend with money troubles.
Co-signers beware—you’re on the hook too!
Sina cosigned on a car loan in 2009 with the goal of helping his buddy establish his credit. While Sina was serving in Afghanistan, the friend couldn’t make the payments on the car and ended up filing for bankruptcy. The bank took possession of the car, crushing Sina’s credit score. He didn’t know what had happened until he went to buy a car for himself a year later.
Here’s where Sina went wrong. “When you cosign a loan, you agree to assume responsibility for the debt if the other person can’t make payments,” said Stephanie Genkin, a certified financial planner based in New York City. If the borrower doesn’t make regular payments and defaults on the loan, it will affect the credit of both signers. “Even though it wasn’t your loan, it stays on your credit report for seven years,” Genkin said.
When it comes to rebuilding his credit score, Sina is going to have to be patient and diligent. It takes time to recover from a major financial mistake.
Undoing the damage
There are some things Sina can do to mitigate the damage. He can file a dispute with the credit bureaus and let them know that he was on active military duty when the borrower defaulted and the car was repossessed. If the lender can’t verify that the repossession is valid or fails to answer the dispute within 30 days, then it can be removed from his credit report. There’s no guarantee, but it’s worth a try.
The damage to his credit score should be reduced during the seven-year period if he makes on-time payments on his credit card and car loan.
Watch the video to learn more about how Sina can fix his finances.
Want to be a part of this new series? We are looking for people in their 20s and 30s who need a money makeover. Apply here.