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Some people may be surprised to know how much their kids can do to harm their credit report. Of course, they can only do that with your consent but sometimes, we fail to realize how much of our credit history they can actually influence.
This is the reason why you need to view parenthood as a financial decision too. While you need to be physically and emotionally ready to have kids, you also have to consider your finances as well. Not only will you experience a bigger expense list, you will also be responsible for the financial well being of the child. You need to instill in them the right values and behavior so they can take care of their finances well.
Your kids will really start out not knowing how to take care of credit in general. If you are not careful with that, you may not only jeopardize their future, but also your very own credit report.
According to StatisticBrain.com, the national average credit score in the country is not too great to begin with. Based on the FICO score, the average is at 691, from a range of 300 to 850. Based on VantageScore, the average is at 749, from a range of 501 to 990. While the average is not really bad, it is not great either. And if you want to maximize your future financial opportunities, it is best for you to be on your guard when it comes to your credit report.
2 ways your children can ruin your credit history
So you may be thinking, how can your kids affect your credit history? How can they destroy your score if you are the one making financial decisions at home?
You would probably think that it is all on how your kids influence what you need to buy. Any good parent would want to provide their child with the best things that money can buy. In fact, there is a survey that revealed how some parents are willing to be in debt just so they can buy their kids new items this Holiday. The debt here is none other than credit card debt. While the intention may be good because gifts will make our kids happy, the means is could be better. For some parents, they experience a lot of financial difficulties because they failed to learn how to say no to their child.
It is true that this particular scenario could ruin your credit score but it is not one of the two ways that your kids can really trash your score. There is actually something much worse than that.Cosigning loans
First is co-signing loans. Here is the background about these type of loans. You as the older one is sure to have a great credit history behind you. Since you have used your credit cards in the past or taken other loans and paid it off responsibly, your score would reflect that you can be trusted with debt. That means you will most likely be approved of a loan. That is not the same for your child. As young as they are, they do not have a credit history yet. That means the lenders have no data to look at to gauge whether your child will be a responsible borrower or not.
This is where you, the responsible parent with the great credit history will come in. You will co-sign the loan with your child so they can be granted the loan that they need. In most cases, this is the scenario of parents with children who are about to enter into college.
While helping out your child with loans is a great support to give them, it will put your credit score in danger. In a page about co-signing loans on the website of the Federal Trade Commission, FTC.gov, it is explained that this will make you responsible for the debt as well. In case your child is not able to pay it back, you will be expected to pay the full amount plus any late charges or fees associated with it. And if your child fails to tell you that they are not able to pay off the co-signed loan, your credit score may have already dipped without you knowing about it.Credit card use
The other way that your credit score can suffer is through your credit card. Some parents make their kids a supplementary user of their card - especially when they reach their high school years. This is a great way to teach your kids how to manage credit. However, it can put your own score in danger. After all, you are still the primary card holder. If you do not monitor what your child buys through the card, you might be in trouble already. We all know the devastating effects of credit card debt on credit reports. Do not let your kid ruin yours by racking up too much debt on your card. Let this be a great lesson for them and not are lesson to you about trusting your kid with your credit card.
How to teach kids about credit reports
The very first financial lesson that your child will learn is going to come from you. Whether this is something that you will sit down and talk to him about or let him see through your habits, they will get the first lesson from you.
It is even possible for you to teach them about credit reports yourself. This is especially true if you have a joint account with them or you listed them as authorized users of your credit card. You may want to show them a copy of their credit report. According to ConsumerFinance.gov, minors are allowed to get a copy of their credit report by the time they reach 13 years of age. Parents can also request this as long as they provide proof that they are the legal guardian of the child.
The main reason why you want to do this is because of child identity theft. It is rare that kids will request a copy of their credit report. This is probably why some criminal choose to use their identities. You want to avoid this by checking on your child’s credit report every now and then.
But even without the report that is on your kid’s name, you can show them your own credit report. Then explain to them the importance of having a good record on your report. You need to tell them that your credit score is an important qualification to have for the future.
This is only one of the personal finance lessons for kids that you need to go through to prepare them for adulthood. If you teach them about credit, you can help them understand the value of money. It helps to go through a couple of videos on the Internet to help you explain things to them.
National Debt Relief have a couple of videos that you can use - like the video below. Here are some tips that will help you lower your credit score by 100 points.