Ways to deal with poor credit as a parent

Quick insights

• Navigating financial decisions as a parent can be difficult, but there are strategies you can follow to help improve your credit score over time.
• It can be beneficial for you and your family to work towards a healthy financial future by equipping yourselves with the proper resources.
• Having a poor credit score doesn’t necessarily mean you’ll have it forever.

As a parent, you’re constantly juggling multiple responsibilities, one of which is making sure you can pay your bills, which can be quite high when you’ve increased your household size. Children come with many financial costs, from education to medical bills, and it can be tricky managing these expenses, especially if you have poor credit. 

Understanding poor credit

Credit score models often have credit scoring ranges that go from poor to exceptional. If your credit score falls in the poor category as referenced by some models, you might feel this is "bad credit." While there is technically no definition of a "bad" credit score, in this article the term "bad credit" refers to low credit scores.

Now, don’t misinterpret poor credit with having no income. You could have an income and money saved but, if you don’t have much of a credit history, your credit could still be poor. On the other hand, your credit score could be poor due to your current credit behaviors, such as late or missed payments or not paying unsettled debt.

Whether you’ve always had poor credit or have recently seen your credit score drop, there are some implications of having a poor credit score. For instance, you may find it’s more difficult to get approved for a line of credit, such as a mortgage or credit card. And, if you’re approved, you could find that the terms are not as favorable as they may be if you had a good or excellent score. For example, your loan or card could come with higher annual percentage rates (APRs) and a low spending limit.

Additionally, because some insurance companies consider your credit score when determining your premiums, you may find that with a poor credit score insurance becomes more expensive.

All the effects of a poor credit score can make the financial stress of being a parent even worse, as you’re not only dealing with these things for yourself, but also for your children.

The potential impact of poor credit on children

If your child decides to pursue college, you may need to consider applying for student loans to help cover the cost of their education. If you have poor credit, your terms for these loans could be less favorable, as you could face higher APRs.

Setting up yourself and your family with healthy financial habits can have a significant, positive impact over time on both you and your kids.

Strategies to help improve a credit score

If you’re a parent who is looking to help improve your credit score, there are a few steps you can take. These include, but are not limited to:

• Prioritize making your payments on time. Payment history accounts for a large part of your credit score, so if you have habit of missing your payments, you may want to do your best to adjust this behavior, including spending less so you have enough to at least make your minimum payment, setting up reminders, or establishing automatic payments. If possible, pay more than the minimum payment each month.
• Review your credit report. Credit reports provide insights into your credit behavior. It can give you a bird’s eye view of your overall credit and help you understand areas to improve.
• Lower your credit utilization ratio. This ratio is the amount of credit you use against your total available credit. Lowering this ratio to about 30% or less can have a positive impact on your credit score.
• Consider debt consolidation. If you have multiple outstanding debts, you may want to consolidate them into a simpler method, such as into a single loan. These loans can sometimes have lower interest rates and make it easier to manage your debt as you only have to make one monthly payment
• Build up a positive credit history. If you have a poor credit score because you have little credit history, you may need to start demonstrating your creditworthiness by using your credit card more regularly, rather than cash or checks.
• Work with a licensed professional. It’s okay to ask for help from a financial advisor. They can help you come up with a plan to manage your debts and find ways to help you work towards a better financial future.

Remember that improving your credit takes time. Adjusting your financial habits can be difficult at first, but with consistency, patience and hard work, you can start to see your credit score improve over time.

Teaching personal finance and credit to children

Sometimes the reason why we have poor credit is due to the fact that we weren’t educated enough about how credit works. Without the right resources and knowledge, how can you know what financial decisions to make?

As you grow and learn about how to responsibly manage your finances, you may want to spread that information to your children. Discuss with them the importance of building their credit from a young age, tips for budgeting and saving and smart credit card usage. You could share your personal experiences with credit and how you’ve made changes to improve your situation, provide real-life scenarios that they can relate to, and relay the negative consequences of using credit irresponsibly. Setting up your child with the proper resources early on can help improve their chances for a healthier financial journey.

In conclusion

It’s hard enough to juggle day-to-day parenting responsibilities, and once you start considering the financial costs that come along with a child, things may seem overwhelming. If you have poor credit as a parent, know that there are ways to help improve your situation over time. By equipping yourself and your family with the knowledge and tools to achieve an improved credit score, you can be a positive role model for managing credit.