Can our kids be affected by our credit rating?

Credit reports are often talked about as the definitive measure of whether you will be able to access a loan. It is important to remember that this isn’t the case. It is just one component of the decision made by any potential lender. Having said that, it is an important part of the process and anything that may impact your credit report is worth considering.

An often overlooked aspect to credit reports is that you can and should use them to your advantage. You can access your credit report for free from one of the UK’s three registered agencies, such as The report should make clear whether there is any reason for concern regarding your credit record. If there are any mistakes, then you should correct them, as there is a chance that they could impact your children.

As a general rule though, there is no ‘guilt by association’ when it comes to credit. Just because a relative has a poor credit record most certainly does not by default impact other family members, even if they share the same surname.

The situation can get complicated though when there is any sort of financial dependency or link between you and your children. For example, when your children get older, they might want you to co-sign or guarantee a loan, perhaps for a car or a property. All co-signatories have equal financial responsibility. They are all expected to ensure that a loan is paid back in full and on time. Should you fail to keep this commitment, then it could well impact your child’s credit record. The process of course also works in reverse too, even for seemingly insignificant items. Maybe for example, you have enabled your kids to have mobile phones or credit cards. If their bills are not paid back on time, then it could have a negative effect on your credit rating.

The same theory applies to becoming a guarantor for your kids on what may seem a more temporary arrangement. It is of course not uncommon for children to turn to their parents as guarantors on a rental property. In doing so, you are effectively guaranteeing that they will pay rent and bills on time. If your children fail to do so, then it might well be your credit record that pays the price.

However, often the most serious concern for parents when it comes to credit and financial history surrounds inheritance. Naturally, nobody wants to leave their children saddled with debt. Well, the good news is that this is very unlikely to happen. If you owe money when you’re gone, then these debts will be deducted from your assets until they are paid in full. If the debts exceed the assets, then essentially the debt is written off with no implications for your children. Of course, this scenario will leave your children with less than they might have imagined.

So perhaps the most important course of action is to simply talk about these issues openly with your children. Death and inheritance is hardly a comfortable subject. However, your children will almost certainly be grateful to be put in the picture, rather than face a nasty surprise somewhere down the line