How Should Accounts with a Co-Signer Be Reported?

A co-signed account is one in which two parties share legal responsibility for a debt. The primary borrower is the person responsible for making payments, while the co-signer guarantees the debt and agrees to cover payments if the primary borrower fails to do so. Properly reporting co-signed accounts is essential to ensure compliance with the Fair Credit Reporting Act (FCRA) and to maintain accuracy in credit reports for both parties.

Understanding Co-Signed Accounts

A co-signer is different from an authorized user because they hold equal liability for the debt. If the primary borrower defaults, the lender can pursue the co-signer for payments, and both credit reports will reflect the payment history—positive or negative.

Common types of co-signed accounts include:

• Auto loans
• Mortgages
• Personal loans
• Student loans

Steps for Reporting Co-Signed Accounts

1. Assign the Correct ECOA Code for Each Party
   • The Equal Credit Opportunity Act (ECOA) Codes distinguish between the primary borrower and co-signer:
     • ECOA Code 1 – Individual account (no co-signer).
     • ECOA Code 2 – Joint account (both borrowers share equal responsibility).
     • ECOA Code 3 – Co-maker/co-signer (liable for repayment if the borrower defaults).
   • Using the correct ECOA Code prevents credit disputes and ensures that both parties’ obligations are accurately reflected.
2. Report Payment History for Both Borrowers
   • Payments—whether on-time or late—must be reported for both the primary borrower and co-signer.
   • If the primary borrower misses payments, the co-signer’s credit report should reflect the same delinquency status.
3. Ensure Proper Handling of Delinquencies and Defaults
   • If the loan becomes delinquent, both the primary borrower and co-signer should see the negative impact on their credit reports.
   • If the debt is charged off or sent to collections, it must be reported under both names, ensuring transparency.
4. Report Loan Closure or Transfer Accurately
   • If the loan is paid off, both parties’ credit reports should reflect a zero balance and a “Closed – Paid as Agreed” status.
   • If the loan is refinanced or transferred, the new creditor must properly update account ownership details.
5. Use Special Comment Codes If a Co-Signer Is Released
   • If a lender removes a co-signer from an account (through refinance, assumption, or release agreement), update the report to reflect this change.
   • A Special Comment Code such as “Co-Signer Released” should be used to clarify that the co-signer is no longer responsible.
6. Notify Consumer Reporting Agencies (CRAs)
   • Any updates to the co-signer’s status must be submitted to all CRAs to ensure consistent reporting across all credit bureaus.

Compliance with the FCRA

The FCRA requires that all credit reporting be:

• Accurate – Ensure that co-signers are correctly reported as liable for repayment unless legally removed from the account.
• Complete – Report both the primary borrower’s and co-signer’s payment history equally.
• Timely – Updates to a co-signer’s role or responsibility must be reflected immediately to avoid incorrect liability reporting.

Impact on the Consumer’s Credit Report

1. Credit Score Considerations
   • Positive Impact: If payments are made on time, the account benefits both the borrower and co-signer.
   • Negative Impact: Late or missed payments will harm both credit scores, even if the co-signer is not the one missing payments.
2. Transparency for Lenders
   • Lenders rely on credit reports to assess risk. Properly reported co-signed accounts help lenders distinguish primary borrowers from co-signers.

Conclusion

Accurately reporting co-signed accounts is critical for FCRA compliance and for maintaining transparent credit histories. By assigning the correct ECOA Codes, reporting payment history for both parties, and using Special Comment Codes when necessary, data furnishers help protect consumer rights and provide lenders with a clear picture of financial responsibility.