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Should You Co-Sign a Loan for Your Parents?

Q: My parents' credit scores are pretty low, and they've asked my husband and me to co-sign a bank loan. Should we? 

A: There might be better options. For one, consider offering them a personal loan. This has its own risks, of course, so you have to make sure you can afford it both financially and emotionally. (To keep things all business, some families choose to have a lawyer draw up a formal IOU.) But if this arrangement goes south, at least it won't affect your credit score. Co-signing a loan, on the other hand, is like borrowing that money yourself. It shows up on your credit report as additional debt; lenders can come after you if your parents were to make late payments or default. You can see the financial fender-bender coming from here. There's another, long-term solution you can opt for: See if you can help your parents improve their credit scores so that they can, in a year or so, borrow the money themselves. There are a number of excellent websites (Myfico.com and Bankrate.com, for example) that offer smart tips on how to rebuild credit. It's easier than you might think. And while the process takes time, the payoff is more than worth it.

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