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What happens when you co-sign a loan for your mate, and they fall behind on their payments, ruining not only their credit but yours, too?

Credit.com reader “Jenna” blames her decision several years ago to co-sign on a car loan with her boyfriend on being “young and dumb.” Now she’s worried — understandably — that his continued inability to make on-time payments has irreparably hurt her credit score. Her boyfriend has made “over a dozen late payments (30, 60 and 90 days) on the loan over the past two years,” she wrote in response to a recent story.

And there’s more potential danger lurking ahead. If Jenna’s boyfriend is late again, Jenna’s credit report could take another hit. If the car gets repossessed, the lender could also sue Jenna for the remainder of what’s owed.

“If this car gets repossessed, they’re going to come after her for any deficiency,” says Gerri Detweiler, Credit.com’s consumer credit expert. “She could end up owing a big chunk of money.”

Now Jenna is trying to figure out what to do. She can’t afford to pay off the car loan. She owes $10,000 in credit card debt of her own.

“Other than his late car payments, I have not been late on a single payment for anything in my name,” Jenna says.

While this might seem to be a string of bad news, it actually isn’t as bad as it appears, says Barry Paperno, Credit.com’s credit scoring expert. First, while Jenna’s boyfriend regularly fails to make the car payment on time, the loan “must be in relatively good standing otherwise the car would’ve been repossessed” already, Paperno says.

The other good thing about the car loan is that it’s about to go away: In less than a year, the car will be paid off, Jenna says.

“This loan doesn’t have that much longer to go,” says Paperno, “so if she can manage the payments on this loan, making sure they get paid on time, her credit will be able to recover if she continues paying all of her accts on time.”

That means the next few months are critical. Jenna needs to make sure that her boyfriend makes all of the remaining car payments on time. If that means she needs to be more assertive with her boyfriend, so be it.

“She needs to know that when you’re a cosigner, that’s your loan,” Detweiler says. “That car that he’s driving is her car.”

Meanwhile, Jenna might need to give up on some strategies she’s considering that have little chance of success. She tried to convince her boyfriend to let her out of the loan.

“I have asked and pleaded for years to be removed from the loan, but he simply doesn’t care,” Jenna writes.

Her boyfriend may not care about trashing her credit, but when it comes to removing Jenna from the loan, there’s nothing he can do. That decision isn’t up to him. Lenders don’t let co-signers remove themselves from loans once the loan goes bad. In fact, from the lender’s perspective, this loan is working exactly as it should. Because if the boyfriend loses the car, there’s still someone left (Jenna) to pay the rest of what’s owed.

The best advice for Jenna, and anyone in a similar position: Take the middle path. As long as she has no late payments on any of her other credit accounts, the damage from this repeatedly late car loan will disappear from her credit report rather quickly. As long as she assures that the car is getting paid off on time, and definitely not repossessed, “her score will recover,” Paperno says.

Image: Jason Spaceman, via Flickr

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