Help! My sister is ruining my credit
He got one credit card for both himself and his sister, and then she stopped paying her credit card bill on time.
This post comes from Stacy Johnson at partner site Money Talks News.
One of the mistakes we sometimes make with credit is trying to help out friends and family members. Just last week, I wrote about three reasons you shouldn't co-sign a loan, explaining the dangers of tying your credit to someone else's.
Here's a recent email I received that underlines the point:
I have a question about transferring a credit card.
About 15 years ago, I got a Discover card for myself and my sister, with me being the primary. As the economy changed, she took a turn for the worse and has been relying more and more on said card. I've never used it, and she's racked up considerable debt with it.
Initially she was late, but now she's making on-time and consistent payments. Having a family of my own now, it's affecting my refinancing as well as my credit. My debt-to-income ratio came into question recently. I was wondering if there's a way to have me removed from the card and my sister take sole responsibility? Please let me know your thoughts -- and thank you regardless.
The short answer is: No, Eddie, you won't get Discover to drop you from this card. You'll have to close the account, then let your sister open another one in her own name.
The logic is not hard to follow: If you were Discover, you'd want as many responsible parties as possible on the account, especially the ones most likely to pay the bill.
Remember, Discover granted you this credit after considering the credit history of both you and your sister. It wouldn't be good business, or fair, to let one off the hook after the account is opened.
The way to cancel this credit card is to pay off the balance, then notify Discover in writing that you'd like the account closed. Paying the balance and cutting up the card isn't enough. Here are the steps you need to take:
- Stop using the card and pay the balance. Don't call and cancel the card until you're sure it's completely paid off. If there's still a balance, it's possible Discover could raise the interest rate. Pay it off first.
- Confirm there's no account balance, and get the address to send your request. When you think it's paid off, call the issuer by using the toll-free number on the back of the card. Confirm the balance is zero and there are no charges or interest pending. If there is, don't cancel yet. Get the amount and pay it off. When you're certain there's a zero balance, call in again and tell them you're canceling. At the same time, request an address to send the cancellation notice.
- Send the cancellation letter. Here's a good example CreditCards.com, which also offers a handy checklist. As the letter suggests, you should send it certified, return receipt requested. Providing the account has a zero balance, either cardholder can cancel it, although both signatures would be better than one.
This process should do the trick, but if you don't receive a reply back within a couple of weeks, call and follow up. If you still haven't heard back, repeat this process until you do. (Post continues below video.)
What if Sis won't go along?
We hope in Eddie's case that everyone's on the same page. But there are situations where the person with the plastic isn't keen on losing it. What then?
Call the issuer and close the account to new purchases. Once the account is no longer able to accrue new charges, repeat the process above to pay it off and formally close it.
And if the person using the card refuses to pay the balance? Don't waste time trying to explain to Discover that you didn't benefit from the card, and thus shouldn't be responsible. They won't care, and you are responsible.
Paying someone else's balance to rid yourself of a joint account won't be fun, but then, that's why people like me recommend never co-signing or otherwise tying your credit to that of others.
While Eddie obviously should get out from under this card, he should also keep in mind that this account, if paid on time, could be helping his credit score. That's true for two reasons: length and utilization ratio. (Estimate your credit score for free.)
Look at the factors that influence your credit score, and you'll find that 15% of your score comes from the length of your credit history. This account is 15 years old. So all things being equal, it would be a good account to keep.
In addition, closing any credit account will negatively affect Eddie's credit utilization ratio. That's the credit he's used vs. the credit he has available. So if he has a total of $10,000 in available credit and is using only $2,000, his utilization ratio would be an attractive 20%. Closing this account will lower his available credit, which could raise his utilization ratio. So again, all things being equal, he'd benefit from keeping unused accounts open.
But all things aren't equal. Eddie can't remain responsible for his sister's debts, and this account needs to go. Plus, there are things Eddie can do to maintain his credit score. He could replace the credit he now shows on this Discover card by seeking a higher credit limit on another card. That would keep his utilization ratio intact. And if he has other old credit accounts, the loss of one probably won't hurt.
More from Money Talks News and MSN Money:
- A simple system to destroy debt
- Credit cards that help you travel in style
- 5 reasons we need free credit scores now
- Calculator:Should I refinance?
- Can you beat your state's average credit score?
- How $5 ruined my credit score
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