Dear Mrs. Riches:
My sister has hit hard times. She has perpetually bad luck, a bad choice of boyfriends, and lousy credit. She's asked me to help her out by co-signing on a car loan and promises that she wouldn't dare do anything to jeopardize my stellar credit rating. I've always read that you shouldn't co-sign for anyone, but I feel incredibly selfish saying, "Sorry, I don't want my boat to sink with yours." Because this comes up in every conversation we have, I have started avoiding her. I am feeling terrible about that, too. Got any words to the wise for someone struggling to do the right thing?
Dear Sister Selfish:
"Sister Sensible" might be a better name for you, especially if you'll work on ditching some of that guilt. Co-signing for anyone is a risky proposition that can cause your own credit to plummet. Your reluctance to allow that to happen is a sign of self-preservation, not selfishness.
You say that your sister has bad luck? Suppose, despite her best intentions, another unexpected misfortune makes it impossible for her to make regular payments on the joint car loan. You can either make the payments on her behalf (you're out money for a car you don't get to use) or let your credit suffer (with the obvious negative consequences). Of course, she may never notify you if she gets behind on payments -- in which case, your credit would take a beating without your knowledge. (Regular credit monitoring on your own can help you avoid nasty surprises.)
Add to these pitfalls the fact that co-signing a loan with someone means that you're offering up all sorts of personal information that, in the wrong hands, can make you an easy target for identity theft or fraud. Perhaps this wouldn't be an issue of concern with your sister, but what about the crummy boyfriends? Even if nothing nefarious were to happen, you might be denied access to credit you need in the future on the basis of how much debt you're carrying. Any way you slice it, relinquishing this kind of control over your financial future just isn't prudent.
So, your instincts are right, but less positive is how you're handling the situation. Take points off for behaving like an ostrich burying its head in the sand. Avoidance, while it may seem handy in the moment, isn't going to work very long. Sooner or later, you'll have to provide your sister with a conclusive answer; it might as well be now. Try practicing what you'd like to say or, if that seems too difficult, write it. Don't get bogged down in a negative evaluation of her (personal attacks are never received well); just simply state that after reading about co-signing and its pitfalls, you're not comfortable with helping her in this way. Your good credit is less about luck than good decision-making.
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