How your kids can be financially affected by your bad credit score

By: on 2018-05-27
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How your kids can be financially affected by your bad credit score

Effects of bad credit can not only make your life worse but also more expensive. Your credit score may be a deciding factor for the lenders and it’ll affect your loan approval process, the payable interest rates to the lender, and even your insurance premiums. Not only that, your bad credit score can even affect your job life drastically.

But most importantly, it can affect your children and their quality of life.

How bad credit affect your kids

1 Bad credit can keep your kids away from student loan

Co-signing a student loan for your kids should be easy if you have a good credit score. But co-signing can be harmful for you if your kids can’t afford the payments. However, if you still want to provide a helping hand to your kids, a bad credit score may create problems for you from doing so.

The effects of bad credit score could be the prime reason for the denial of the student loan application.

If your kids can’t get the financial support from you and are also unable to be eligible for a student loan, your child might have to choose from limited or low-quality educational standards. We all know that getting limited college options can create a deficit in your kids’ educational growth.

**Marc Johnston-Roche, the cofounder of Annuities HQ, expressed his concern about this issue - "...Bad credit could also impact their ability to receive student loans for college, and limit your ability to help them as a co-signer for their first car or home."

But is there any way your kids can get a little support?

Yes, federal student loans can help your kids if you can’t help them due to your bad credit history. There are two more options - The Perkins loan and the Stafford loan; your kids still can obtain these loans if you have a bad credit score.

2 Effects of bad credit history might create obstacles while for your child’s credit history

Student life is the best time for establishing credit history. But, it wouldn't be so easy at the very beginning.

Practically most of the credit card providers will ask for a co-signer if the applicant is a kid. So, if you want a credit card for your kid, you may have to co-sign it and you should have a good credit history in your pocket.

Having a bad credit score can jeopardize your kids’ application. You can’t deny the importance of having a credit card for the credit building purpose. If your kid can manage his/her card well, it will give a kick-start to establish a good credit history.

But is there any alternative available?

A secured credit card might work here. Your kid must use the secure credit card responsibly, and pay it off before the due date. If he/she neglects the duty and uses the secure card unwisely, the high-interest rates will cost you and your kid much more than what he/she owes. Apart from that, his/her credit score will be badly affected.

3 You may convey poor financial habits to your kids

If your bad financial habits is the reason for your bad credit score, you might be also teaching wrong financial habits to your kids.

Your kids will learn every financial move from you. They will learn from you how to budget, how to make plans for more saving, and how to make strategies for a better financial future.

Kids probably don't know anything about managing personal finances. So, if you're not going to show them the right path, in the future, they won’t be able to handle their finances in a healthy way.

**Marc Johnston-Roche, the cofounder of Annuities HQ, added - "Growing up in an environment of constant financial worry can cause your children to ‘inherit’ those same concerns and carry them into their adulthood..."
Then, how can you teach your kids good money habits?

The best way will be learning money lessons together. Change your money habits in front of your kids. Your attitude towards financial matters may affect your kids’ mind, they will start adapting your money habits.

You can begin with going for a financial counseling session for both you and your kids. The more you both will learn, the more you’ll sort out your financial problems, and both of you will be able to build better financial habits day by day.

4 Your bad credit may create a barrier to their bright future

Your kids may want to learn and join few special extracurricular activities and classes. They might want to sign up for short expeditions, field trips, music classes, craft classes, mountaineering training classes and many more. These special classes and training may cost a good amount, and for that reason, you might need a good financing option for your kids.

You might want to use a credit card or opt for a personal loan to pay the fees and miscellaneous costs. But due to your bad credit score, you might face difficulties in the process.

If you can’t cope up with the extra expenses, your kids might have to leave classes midway or they even can’t sign up for them. If you want your child to flourish through his/her talent in the future, you can’t ignore the importance of learning those special courses.

**Justin Lavelle, Chief Communications Officer for, described some of the ways your bad credit can harm your children’s point of view towards money:

“Bad credit will limit options that you have to provide your kids opportunities. A lot of things your kids want and need cost money and unless you are flush with cash you may from time to time require credit to get through the lean times. Back to school shopping, camps, and extracurricular activities all cost money and good financial management and the availability of credit can help you provide these things for your children.”

“Kids learn a lot from their parents and financial management is one of them. If you are constantly struggling with your finances or are denied credit for large purchases these events can rub off on your kids and they may be less likely to handle money of finances when they are of age to need to..."

What if you don’t have that much money to back up your kids?

Some inexpensive options can help your child to excel in an academic profile. You must encourage him/her to choose free extracurricular activities such as working as a volunteer in local communities, getting lessons by rendering service or help, or applying for scholarships for workshops and camps.

5 Your bad credit score can ruin their home life

If you ask yourself “How bad credit can affect your kids?”, you’ll not get any definite answer. But if you ask “how much bad credit can affect you?” your options will be huge. Your poor credit score can affect your work life, housing, lifestyle, and transportation. Yes, you might lose your lease contract due to a sudden fall in credit. This may put your peaceful living in jeopardy and you’ll be under stress with your family.

The same situation might happen when you opt for a car loan. Without the loan, there’s no car; and no car means your kids may need to depend on public transportation or may need to ask their friends for a ride.

The situation might get worse when there is an emergency.

6 Kids’ insurance coverage might get affected due to your bad credit

Bad credit can even affect your kids in terms of low insurance coverage!

“In some states, your credit-based insurance score can be used to rate your insurance,” Scott W. Johnson, manager and founder of Marindependent Insurance Services LLC, explained. “If your parents have a bad score and end up having to pay more for auto or home insurance, it could result in the parents opting for less insurance. This could obviously wreak havoc on a young adult that is still getting their auto insurance from their parents. Lucky for me, my home and auto clients are based in California where this practice is not allowed. There are a few more states where this practice is illegal.”

You might be thinking about a bad credit loan as a resource to your money requirement. But you may need to change your mindset toward your poor credit. What you need is to get a secured credit card and try to pay it off in full before the due date. Make sure you pay all your bills on time, you can ask your relatives and friends if you need financial help. You won't believe, within few months your credit score will be in a good shape and your kids will have a bright future.

Last Updated on: Sun, 27 May 2018

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