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How to Deal When Your Kids Hurt Your Credit Score


Posted on June 5, 2011

 

As a parent, you may choose to provide financially for you children even after they have turned of legal age and accountable for their own finances. However, it is important to realize that while your gestures may be nice, the fallout from the gesture can do your credit score serious damage. You will then need to repair your credit if you wish to continue keeping a solid score for your own financial well-being.

Why Lend Your Credit

Many young adults lack the financial history necessary to get credit. It is a Catch-22 situation and in some cases, parents agree to step in and co-sign for credit cards, car loans, or student loans. Parents typically do not agree to pay the monthly note but as a cosigner on a financial obligation, the parents ultimately become responsible whenever a payment has been missed. By the time a late payment has gone overdue, many parents will find their score has already dropped and their credit history has been affected.

While young adults may lack credit experience, it may not always be a wise idea for parents to lend their own good credit to help. There are many credit cards and other loan programs designed for the less-experienced and they may be better options for those trying to establish a credit history. Besides the risks to the parent’s credit scores, bad blood can easily be developed between families and financial matters.

What To Do If Payments Are Missed

There is no way to reverse the negative affects of your kids missing payments on your own credit score. By cosigning for the loan, you agreed to be totally responsible for the debt and will suffer the effects credit-wise when the obligation is not met. This means that not only will you have to pay the money owed you’ll also have trouble getting your own credit in the future because your credit score has dropped.

If payments are not made on-time, it is wise for you to make up those payments on your own to save your credit history now and for the future. Ideally, parents lending money or their credit to their offspring should have a lengthy discussion with the child about expectations and consequences for failing to meet the financial obligation. You should also be clued in on the account information, the creditor contact information, and the online account access. Without this information, it may be hard to make payments on the account if your child does not. As a cosigner it is just as important for you to be fully aware of the account status to protect yourself.

Consider Your Risks

Seven years is a long time to wait for better credit. If you put yourself at the mercy of others who can damage your credit, it will cost you. With lower credit scores, expect to start paying higher insurance premiums, more cash deposits for utilities and other services, and higher interest rates for your own loans.

Before you agree to act as a cosigner on anyone’s creditor accounts, discuss the expectations you have with the other person and seriously contemplate the possibilities of your involvement in someone else’s account.

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