Tuesday, September 2, 2008

When It Comes To Family and Friends, I'm A Credit Villain. So Be It!

I'm the bad guy in my family. And. I. Don't. Care. I love my family members. I wish the best for them. I'm always rooting for them. But I am not going to risk my credit life for them. I don't care if you think I'm greedy and uncaring. My credit is my credit. Your credit is yours. Deal with it.

Now you can see why everyone is so fond of me (rolls eyes). We all have to make tough choices in life. When it comes to finances -- especially with family and friends -- the tough choice must be made. When it comes to cash (as opposed to credit), I'm a bit softer in my stance. Indeed, although I hate lending money to people, I'm not against making a gift. A gift means that I won't have to chase someone around so that I can get paid. Plus, giving money away means that I'll never have to worry about ruining a perfectly good relationship because of money.

When it comes to my credit history, though, that's a different story. I am as rigid as all get out. I can't compromise here. That's my rule and I am sticking to it. I will not be a co-signer on an auto loan. I will not be a joint cardholder on a credit card. I will not put your electricity bill in my name. I won't get a cell-phone account in my name so that you have a cell phone to use. I will not get on your lease so that you have a place to live. In short, I am not your credit life line. Period.

I feel sorry for those who struggle with this issue, though. At our core, we all want to help people out. We want to help our family and friends even more. But when it comes to your personal credit reputation (and that's what your credit history is), you have to stand firm. Why in the world would a deadbeat who doesn't care about his or her own credit, ever care about yours? There is a reason every creditor has denied this person. They're not a good credit risk. Can you imagine this person caring about your credit? Fuggedaboutit. Oh, they'll tell you that you can trust them and that they'll never miss a payment. But desperate people do and say desperate things. I don't want to hear the rap. I've heard it all before.

These desperate people come to you because of your stellar credit habits. They come to you because they know you could get approved for whatever it is they cannot. But you didn't get to where you are by being stupid. And stupid is what you'd be if you decided to put your credit history on the line for someone who has shown a history of not giving a damn about credit. In the end, you'll either end up with a credit blemish or you'll end up footing the bill. It happens that way almost every time. Take it to the bank.

I recently loaned a couple hundred bucks to my nephew. He was in a real bind. He needed the money -- post haste (don't they always?). He made every promise in the book. He'll pay me back on Tuesday. He won't let me down. Guess what? Tuesday came and went. He called at the end of the week to let me know that he would pay me back during the following week. What happened to Tuesday? Something came up. Don't worry. I'll have the money soon, he said. This was in June. It's now September. I still haven't been paid back. I haven't heard from him in six weeks.

But here's what he didn't know: I was going to let him keep the money. If he had tried to pay me back on that first Tuesday I would have declined the payment and told him to consider it a gift. I made him think it was a loan so that I could learn something about him. Would he turn out to be a great credit risk? Or would he turn out to be a desperate person who would say anything to get the money that he so desperately needed? Now I know.

Meanwhile, some of you are thinking about hitting the "comment" button because I've ignored the other group of people who need credit help. These people aren't deadbeats -- they're people who don't have any credit at all; they're people who might be starting out. My answer is the same: don't put your credit reputation on the line. It's not worth it.

My position may not win any points with my family and friends, but that's OK. I'm still there for them in everything else. I'm reminded of "Rounders," the Matt Damon movie, when it comes to people taking advantage of my credit. There's a scene in the movie where Matt Damon's character is trying to borrow some money from a friend. Damon's character is desperate for cash. He owes big money to a bad man -- and the debt is due in one day. The quote: "You want me to call some people, try and buy you some time, I will. Place to stay, or the truck. No problem. But about the money, I gotta do this. I gotta say no."

And that's exactly what you have to do with your credit. Do what you can to help your friend or family member out. But when it comes to putting your credit history on the line, you've gotta do it.

You've gotta say no.


Bob Wang said...

Nevertheless, my offer still stands ;-)


Credit Matters said...

Bob, you really do crack me up.

Thanks for reading -- as always.

LBCS said...

Very sage advice. Here is my example:
About 2 years ago I was in the credit rebuilding stage and needed to buy a car. I had paid cash for my previous Lexus, but this time decided to take a loan as my credit was getting better and needed some credit diversity. USAA refused to give me a loan without a co-signer (should have been my warning right there) - so I went ahead and asked my good friend to co-sign, which he did, without thinking twice. I paid up the loan in about a year and a half and it was a happy ending.

Around this time last year a relative came to me with a problem - he got a job that involved a ton of traveling and thus needed a Credit Card to rent a car, for emergencies, etc. Ordinarily, I would have refused, but wanting to "pay it forward", I went ahead and made him a Authorized User on of my credit cards. Long story short - he now owes me close to $5K and I had to call and get the number changed to invalidate his card. Plus I paid the balance in full since I cannot wait for him to pay.

If only I had been patient. I could have qualified for a car loan on my own in just a few more months. But my impatience cost me dearly. Your article is 2 years too late, CM. I had to learn the lesson on my own. :-)

Sorry for the verbosity. Your article opened a raw wound.

Josh said...

What do you think about adding people as authorized users on your credit cards and NOT actually giving them the cards to use - so i.e. just to help build their credit?

LBCS said...

Josh - That appears safe, but with 2 caveats. Remember that some credit reports give the full account number, so your authorized user can obtain the number and use it on the Internet. If you cannot trust him with the card, you should be aware of this loophole. Secondly, some credit cards, will not add the entry to the Credit report unless the Authorized User shares the same address.

Collins said...

As always, great article. I wish more people understood this stance, because it is one that I have had to take and one that is misunderstood by half of my family.

My Dad has cosigned a car for my brother and my brother vert rarely pays the note. SInce my dad has always had steller credit, he pays the note rather than let it be repo'ed, so as not to ruin his good name.
A few months ago, my brother asked me to cosign. I laughed at him, asked him why he thought I would cosign a loan for him when he does not even pay our dad, who lives in the same house. My mother thought I was being rude and shunning a family member. I tried to explain that this was not rude nor shunning, I just didnt want to be stuck with a bill I could not afford, since I had no assurance he would pay.
I am a lot like you CM, cash I will give, credit on the other hand, no one but me touches, really not even my husband has true access to my credit.
It is just smarter that way.

Lynn said...

I agree, Look I am just rebuild my credit, I got in debt waiting for my social security to kick in. Now I am starting to see the light at the end of the tunnel. Even when I did not have, I NEVER asked anyone to extend credit to me. Even now I need a new car, My dad has offered, my boyfriend has even offered, I have turned them down. That is to much money to put anyone in the hole. There is a truck that I want, and I will wait till I am able to do it myself.
BTW I will not offer my credit to anyone

Credit Matters said...

Sounds like we all have a story to tell.

The best policy, I think, is to simply keep your credit segregated from everyone. The choices we make today could impact us for seven years.

Of course, most of us would end up footing the bill. We would not want to ruin our credit -- so we'd be like LBCS and simply pay it ourselves. That has to leave a sour taste.

LBCS, not to get too personal, but are you still on good terms with the relative that stiffed you?

Josh, LBCS made good points. I would give take those to heart.

Collins, that's what always amazes me. We watch these people ignore their debts and then they come to us -- saying that it will be different this time. It's RARELY different. It usually ends the same way. What they've done to others, they'll do to us. Sad but true.

The foolproof method is to simply say no.

Lynn, congrats on getting to where you can finally see some light. You'll get there. And good luck on the truck.

Finally, thanks for all the comments this morning.

SpaghettiBender said...

Very wise advice. NEVER let anyone ruin your credit.

However, I might cosign for one of my kids to help them along the way.
My oldest cosigned for me so I could start rebuilding credit.
I pay on time. I am not a risk and he knows that.
I just never used credit after a bk 9 yrs ago!!

Some family members do deserve a little boost.

I recommend this if you're thinking of cosigning for someone for a credit card to help them build/rebuild credit. Have them give you the credit limit in cash up front. Yep, if they can't do that, then, I am sorry, i can't help you rebuild your credit.
If they need the credit history as most of us do, then they will give you the cash. The credit limit might be a small 300.00, which is plenty to get started on.
You collect the interest it earns in a savings account, and if they ever decide to default, you have the money to pay it.

Don Miguel said...

Another thing to keep in mind is that even if you trust the person for whom you're co-signing implicitly, the payment will probably figure into debt to income calculations for some loans, particularly mortgages.

Credit Matters said...

Good point, DM. Good point.

LBCS said...

Credit Matters - No, I am not on good terms with the relative since he abused my trust. However, I have not mentioned this is to anyone else in the family as per his request.

Credit Matters said...

LBCS, sorry to hear that. Just another casualty, I guess, in the family-lending wars.

Just another reason to say no.

Jen said...

About 5 years ago, after my daughter was born, I went through a really rough time. I asked my brother for $500. He refused.

What he did do though was take my bank account and download it into excel. Then we put everything in a category. No "misc". Honestly, his refusal to help me (and I had never had money problems before, but that was a year of a perfect storm) helped me more than the $500 would have. I learned how to identify slow leaks in my budget, how to budget (I had taken a 50% pay cut to take a job that required 0% travel), and how to anticipate problems. I went from having a job that paid more than I could spend in a month to one that paid the bills comfortably, but I also had an infant to worry about.

Rescuing someone from financial or credit woes, doesn't provide a lesson that other avenues would. Also, if I would have not paid him back.... it would have damaged a relationship that I consider one of the most important ones I have in my life today. For $500? Wouldn't be worth it.

Credit Matters said...

Jen, great story. And I agree with you completely. Not worth the risk for $500.

You learned how to fish instead. Now you're fishing.

Anonymous said...

It's kind of hard not to co-sign for/with your bad-credit spouse though, especially when you need their income to qualify for the debt to income ratio on a mortgage.

Credit Matters said...

If I wasn't clear in the story, I was excluding spouses from the equation, Anon. I agree. Pretty difficult to exclude them.

Jake said...

It is difficult to exclude spouses but I'd argue a lot of people wish there was a non-confrontational manner of doing so.

Credit Matters said...

Right. Very difficult to exclude spouses.

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