Can Having Children Hurt Your Credit Score?

Cole Mayer
Can Having Children Hurt Your Credit Score?

Having a baby is expensive, but will not technically cause a decrease in your credit score. However, having kids does strongly correlate with a dip in credit and a rise in debt. Medical bills alone could run in the tens of thousands, and that’s just for a healthy pregnancy with no complications. Add on numerous new expenses like diapers and formula, and it’s easy to get behind on payments, which will hurt your credit. Let’s look how to combat a potential credit score decrease after having a baby.

How Kids Can Increase Your Debt

To understand how having a baby can hurt your credit score, we first have to look at the costs of having a baby. The first and most obvious cost is straight from the hospital. From personal experience, even with insurance, the hospital stay is not cheap. You are looking at paying at least a few thousand dollars in medical bills alone. Unless you have piles of cash, your medical debt is monthly bill to pay.

Next, there’s consumer debt. Factor in formula (unless you are exclusively breastfeeding), food, clothing, toys, diapers, healthcare — in case something happens to you, the parents — and childcare, and you could easily have an extra $1,000 or more to account for.

Add this to any credit card debt, mortgage or auto loan you are already paying off. Missing a payment on these will hurt your credit, and likely increase your interest rate — meaning more money you owe to lenders, snowballing into payments you can’t pay.

How Having Children Affects Your Credit

The main reason children may hurt your credit is the difficulty of creating a realistic budget. Strictly speaking, children do not factor into credit score calculations. Instead, it’s the extra money you spend, that then requires you to go into debt, such as with a credit card, and then failing to pay on time.

Consider this: The latest data, released by the US Department of Agriculture in early January 2017 for stats from 2015, showed the average cost of raising a child is $233,610 through age 17, assuming a two-child, married couple, middle-income ($59,200-$107,400) household. Adjusted for projected inflation, it’s $284,570. And that doesn’t even include college tuition, estimated at about $20,000 per year for a public school and about $45,300 per year for a private school.

That probably means eating at your favorite restaurant every weekend isn’t going to be feasible. If you do not budget correctly, you could overextend based on your income, and find yourself in a position where you can’t pay a bill, or pay it on time. Either way, your credit will take a hit. It’s not that having a baby directly affects your debt and thus credit score; it’s not changing your behavior and accounting for new expenses.

If you do end up falling behind on bills and debts, it’s likely they will go to collections. About a third of your credit score is calculated based on timely payments of debts. In other words, going to collections will do your credit score no favors. It’s a black mark on your credit report that is not easy to remove until the legal time limit expires.

How to Protect Your Credit and Minimize Debt with Children

Hopefully, you were already budgeting while you were expecting. This will go a long way to protecting yourself financially. Budgeting for your first baby means you will have money already tucked away, rather than frantically trying to get money together for the quickly mounting bills.

This could take the form of buying items before they are needed, or simply earmarking money before it’s needed. It’s better to get used to living frugally before you need to and easing into the lifestyle; after all, your life is going to change after having a baby. Remember: The question isn’t actually how kids affect credit, but instead how kids affect your lifestyle and expenses.

You need to start making a budget with all of new baby-related expenses factored in. Again, you need to be realistic, and prioritize needs over wants. You need diapers; you don’t need to go to that concert, which will also likely involve hiring a babysitter. Set savings goals for yourself, and keep to them. Remember that this is all in the name of providing a better life for not only yourself, but for your children.

Having a baby will not necessarily wreck your credit. Lenders and credit bureaus will not penalize you for choosing parenthood — so long as you plan ahead and account for bills and expenses you did not have prior to childbirth. If you can budget accordingly, cut back on non-essentials, and focus on what you need to provide for your child, your credit score should remain unaffected.

If having a child can potentially hurt your score, what else can affect your credit score? Find more articles at our credit score resource center.

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