Does My Credit Score Affect My Family?
Know Your Credit Part 5: One of the most frustrating things that I encountered while trying to understand my credit score was attempting to piece together all the scattered information on the subject. It is impossible to go to one place and get all the information you need, caveats and side notes included. The confusion led me to some poor financial decisions. Being that I do not want you to face the same difficulties I will create a string of blog post, that if followed in order will give you a complete understanding of credit scores in snack sized bits. All so you can digest it without being overwhelmed. At the end you will be the expert and run me out of town.
For many of us the daily things that we do go beyond simply advancing ourselves: careers, dreams, income; we are heavily influenced by the family we love and hold dear. So, it is a very fair question to ask, how does my credit affect my family? If you have read the other blogs I have posted you will begin to quickly understand that credit scores are trickier than what most people will lead you to think. In fact, I challenge you, google “How does my credit affect my family” and you will run into many useless links. The fact is that discussions on how your scores affects your family are not being had and that really needs to change.
Yes, your credit score affects your family. Not in the way you might think though. Credit scores are judged on a person by person bases. Everyone has their own account and their own history. Then, how does your credit score affect your family? For starters, establishing credit is not easy when you have none. It is one of those old adages “I don’t have any credit because I don’t have any credit history, but I need credit to build credit history.” It is the story of every young person’s life. This is when having trusted and financially responsible family members helps. By law, people without income are not allowed to get a credit card. That means that many teens going off to college have to rely on their parents to co-sign their first credit card and that is contingent on the parents having a good credit score. Without a co-signer a teen will have a more difficult time obtaining their first credit card and starting their credit history.
Parents can also help by adding members as authorize users to their own credit card accounts. As a result, teens will be able to start building credit without taking on hard inquiries that might result in rejected applications and an even lower credit score. This will also help members get worthwhile credit cards, instead of having to get “secured cards” that later on can be upgraded to low benefiting cards.
Family members are then forced to stick to these crappy cards because credit scores are largely affected by credit age and closing accounts will bring that average down. It is not that I am completely discounting secured cards but better options can be accessed by relying on family. Case in point, I put my brother as an authorized user on my Discover card for a few months, before I knew it he was able to apply to some of the post prestigious credit cards out there at age a young age. The benefits given to him by these cards have put a lot of money in his pocket either directly or indirectly through discounts or benefits. These benefits chip away at his cost of living.
Credit cards are only part of the battle. Parents will also have to deal with college loans. With today’s skyrocketing college cost parents are increasingly indebting themselves to cover what Financial Aid won’t. These loans over the course of a college career can end up adding to be tens of thousands in debt.
Adding insult to injury, the interest rates on these loans can be significant, especially if you have a poor credit score. In this case, poor credit can force parents to pay an arm and a leg in interest or have their child forego the university of their dreams.
What about a teens first car? They will need it to get around: jobs, internships, or leisure activities. Without a co-signer, your teens chances of getting a decent car, at a decent rate are slim to none. In my case, I had to get my first car without a co-signer and even though I had decent credit I was still hit with an 8.09% APR. The money I borrowed was about 16 thousand but after interest I will be paying about 21 thousand. Had I had a solid co-signer I would be saving myself a few thousand dollars. This is the price to pay for being the first in my family to establish credit, but at least I will be able to help my brothers when their time comes.
For married couples credit becomes really important when it’s time to buy a home. Banks will take both of your credit scores to determine the terms of the loan. That means that if either of you have a bad credit score the APR will be higher, thus costing you thousands of dollars more for the life of the loan. Doesn’t that make you wish everyone you were interested in had their credit scores written on their forehead?
These are a few of the most common examples as to how credit scores affect family. However, it is hard to quantify how the psychology behind having a good credit score affects family. It is not the score its self. It has to do with the habits needed to keep a healthy score and how those habits are past down to children and other family members. It is no coincidence that families in poverty have a hard time getting out of these conditions. Many of these families have adults working full time jobs but at the end of the month they find themselves short on cash.
While having a solid credit score does not mean that you will be able to get out of poverty it does help reduces the cost of living. Your car insurance, health insurance, interest paid on loans etc. Saving a few hundred every year can make a world of a difference for some families. It can even mean breaking legacies of poverty. Children, family members and friends will look onto those who are doing well around them and reflect those same habits.
In my home, I have become the financial educator. Gnawing at the ears of family and friends about the importance of credit, investing, and responsible financial decisions. It was those conversations that lead my mom and brother to get their own credit cards and begin establishing credit.
Thanks to those conversations we can talk about buying a home, my younger brothers’ college expenses, and using credit card points to discount family vacations. For us, every bit helps.
My fifteen-year-old brother and seventeen-year-old brother have started establishing credit through my mom as authorized users. I also have conversations with them about handling money responsibly. These are conversations that put them years ahead of where I was when I was their age. So, you tell me, what is that worth?
