How Your Bad Credit Can Impact Your Kids

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This is not about laying the guilt on you as a parent (there's already plenty of that to go around). However, you need to know that bad credit not only impacts your financial situation, but can also have long-term effects on your kids. Here's what you need to know.

It could keep them from getting a student loan

Co-signing a student loan should not be the default decision in helping your child afford college. Co-signing can cause serious financial problems for you down the line if your child cannot afford to make the loan payments. However, if you do decide you want to help your child apply for a student loan by co-signing, a poor credit score could prevent you from doing so. Your negative credit history will come up in the loan application and can cause it to be denied.

Being unable to get a student loan means that your child may have to choose from limited educational options. Is that the end of the world? No, of course not. But certain career tracks depend on specific educational programs, and limited college options can make that difficult.

Federal student loans, however, are still an option for your child even if you have poor credit. The Perkins loan and the Stafford loan, for example, have fixed interest rates and don't depend on credit history to determine eligibility.

It could make it more difficult for them to establish a credit history

College is often the time when young adults start establishing their own, independent credit history. That seems like no problem, until you realize that "independent credit history" isn't so independent at first.

In fact, many credit card companies require a co-signer on a card if the primary applicant is under 21 years of age. That means that if you want to co-sign on a card to help your child start building credit, your own bad credit can cause your child's application to be denied. Keeping your kid out of credit card debt is great, but well-managed use of a credit card is often a great way to start establishing credit history. It's tough to get credit for a bigger purchase when there's no credit history to check.

A secured credit card may be a good alternative, but keep a careful eye on hidden fees and increasing interest rates. The key to using a secured credit card successfully is to pay it off in full each month; otherwise, the high interest rates will cost you and your child much more than it's worth to build that credit history.

It could teach them poor financial habits

If your bad credit is a result of poor financial habits, you may have passed those — and a bad attitude toward money in general — on to your kids. (See also: 4 Bad Money Habits You're Teaching Your Kids)

If they haven't learned from you how to budget, how to save, and how to plan for the future, they probably don't know how to do it. And if you're not showing them how to handle financial stress in a healthy way, or communicate with each other about financial issues, chances are they won't learn how.

The great news is that you can all learn together, starting now. A poor financial past does not have to mean a poor financial future. You can change your habits and your attitudes, and there's help available to do so. Start with financial counseling to figure out how you (and your kids) can build better financial habits for today and for the future.

It could prevent them from accessing opportunities

There are often special extracurricular activities, such as field trips, tutoring, music lessons, and more, which come with a hefty price tag. Many parents can't afford these expenses outright, but can use a credit card or other loan option to pay for the expense and then pay that debt off within a few months.

Poor credit can keep you from being able to access this payment option for these extra expenses, which means your child may have to pass on them. If your child is focused on a future that involves art, music, or sports, those missed opportunities may really matter.

However, it's worth noting that, in general, there are inexpensive options to build a stellar academic resume. Look into free extracurricular activities such as volunteering in local communities, trading lessons for service or help, or applying for scholarships for workshops and camps. (See also: Save on School Expenses Without Ruining Your Kid's Childhood)

It can negatively impact their home life

Poor credit can have a major impact on your ability to access housing, transportation, and work. It isn't fair to be judged solely by your credit score; unfortunately, it happens.

Poor credit might prevent you from getting a lease, which can make your living conditions unstable and bring a lot of stress into your life. You might encounter the same issues being unable to get a car loan, which means you have to rely on public transportation, rides from friends, or an old, unreliable car for getting around.

Of course, living and transportation issues can make getting to work difficult. If your job is unstable, your income is unstable. This instability leads to more financial issues and stress, all of which can directly impact your child's life at home. It's a vicious cycle.

What can you do?

Despite the negative consequences of bad credit, there are steps you can take right now to start improving things. It's not just for you; it's also for your kids. Here's a short list to get you started.

Get financial counseling

There are resources available, such as confidential, low-fee credit counseling from nonprofit organizations. A good place to find help is through the National Foundation for Credit Counseling and the Financial Counseling Association of America. You can also ask at your local credit union and religious or nonprofit organizations. Many of these places offer free or low-cost access to financial advisers, credit counseling, and debt management. (See also: 8 Organizations That REALLY Can Help You With Your Debt)

Start taking steps now to deal with your bad credit

Don't put this off another moment longer. Credit counseling, debt consolidation, lowering expenses, and even declaring bankruptcy may be good options.

Dealing with poor credit is not easy. However, you're not alone. Many people have dealt with bad credit and come through it stronger than ever, and you can, too. No matter how tough your financial past has been, you can build positivity for your kids by communicating, being proactive, and looking for ways forward, together.

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