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Top 5 Financial Tips for African-Americans (continued)
Tip 5: Stop Co-signing for Loans
Can you pay my bills?
Can you pay my telephone bills?
Do you pay my automo' bills?
If you did then maybe we could chill
I don't think you do
So, you and me are through
“Bills, Bills, Bills”, Destiny's Child 1999
The song made famous by Beyonce and Destiny’s Child
really brings home the point that we live in a culture where we
have no problem asking friends and family members to help us out
of financial troubles. “Can I have”, “can you
pay”, “can you co-sign!” Just watch 15 minutes
of any Judge Mathas, People Court, or Judge Judy and the answer
to the question is obvious – Don’t do it!
It’s very tempting to lend your credit to a family member
or a friend. “After all it costs you nothing,” Hamilton
said. But as a co-signor of a loan, you also agree to the terms
of the contract. “You have to be aware that any late payments
or defaults on the loan can impact your credit – which impacts
your ability to buy your car, your house or even send your child
to college,” Hamilton added. Creditors will look to anyone
who will pay off a debt, so they will look to you for any unpaid
balances. “If things get really bad, they’ll hire collection
agencies to collect from you,” Hamilton said.
“You have to question yourself as to why this friend or family
member can’t get the loan without your help,” Kuti added.
In some cases, it’s because they haven’t built their
own credit history. But in many cases its due to plain old bad credit
history. “If they don’t care enough to be concerned
about their own credit, why would they be concerned about yours,”
Kuti questioned.
You may be saying this goes against the suggestion in Tip
1 that a family member should come to you first when in
financial bind. But Kuti added that it’s not inconsistent
and “it’s probably better for you to give the family
member or friend a short term loan and risk them defaulting on it
than tying your credit to theirs.”
In fact you should help the family member build their own credit
or improve their credit rating including by “reviewing their
credit report annually and looking for any inaccuracies on the report
so that these can be fixed,” Hamilton said.
Thus, Tip 5 is no co-signing. Thanks to the recent
passage of the Fair and Accurate Credit Transactions Act, by the
end of 2005, you’ll be entitled to one free copy of your credit
report per year. Check out http://www.bankrate.com
for an article on free credit reports and a map showing which states
can get free credit reports now. Also, go to http://www.myfico.com
for information on ordering a credit report. Finally, for more on
cleaning-up a credit report, see the Federal Trade Commission’s
“Building A Better Credit Record,” at http://www.ftc.gov/bcp/conline/pubs/credit/bbcr.htm.
There are numerous Web sites and services providers offering to
fix your credit report. Beware
of shams and make sure you do your research on these organizations.
Note: Please note neither the author nor CelebratingChildren.com
endorses, guarantees, warrants or otherwise represents the veracity
of any of the Web sites provided in this article. As always, the
reader should do his or her own due diligence when giving personal
information based on any information read online.
Shannon Nash is a tax attorney and C.P.A. She received her Bachelor's
degree in accounting from the University of Virginia, McIntire School
of Commerce and her law degree from the University of Virginia School
of Law. She is a past officer of the American Bar Association and
Chair of the National Bar Association Tax Section. She also writes
the "Special Needs Journey" column.
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October 15, 2004
Updated February 12, 2006
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