Mortgage Default + Your Credit Score = Bad Combination
Defaulting on a mortgage doesn’t just hurt your own credit. It can also affect the credit scores of your loved ones. Money Girl explains
Laura Adams, MBA
Q: “I have poor credit and was unable to get a mortgage. Thankfully, my daughter got one for me. I’ve made all the payments, but my income has recently been cut and now I can’t afford it. How will my default this affect my and my daughter’s credit?”
A: When you sign for a loan or credit account, you are accepting legal responsibility for the debt, no matter who actually makes the payments.
The payment history of a debt is reported to the credit file of the debt owner(s) only.
If you aren’t listed as a borrower on the mortgage, the payment history isn’t reported to your credit file, just to your daughter’s.
Therefore defaulting on a loan in your daughter’s name only puts her credit in jeopardy, not yours. There’s no way to say exactly how much her credit score would drop in the case of default, but it could go down in excess of 100 points.
Discuss the situation with her as soon as possible, if you haven’t already. If you default on the loan, her credit will suffer and the lender may take legal action against her.
I recommend that she seek the advice of an attorney to fully understand the consequences of a default in the state(s) where you live and the best financial and legal options for both of you.
To learn more about credit, download the Credit Score Survival Kit. This free multimedia kit includes a video where I show you step by step how to get your free credit report. Plus, I tell you about my favorite place to get your credit score for free, with no strings attached.
Laura Adams is the award-winning author of Money Girl’s Smart Moves to Grow Rich. Get the paperback or ebook on Amazon!
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About the Author
Laura Adams received an MBA from the University of Florida. She’s an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura’s previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.