Parents do more harm than good by shouldering children's debt


Parents often want to cushion a child's landing into adulthood. Yet some are taking that parental instinct too far, according to Noddle, a free credit report service run by Callcredit. Instead of requiring their adult children to set up their own credit arrangements, many parents are paying their bills, loaning them money and even taking out credit for their kids in their own names.

Many adult children rely on parents
A significant proportion of young adults have no experience of credit cards or personal loans, according to the latest research from Noddle. In a survey of about 2,000 adults conducted by research firm ICM, roughly two-thirds of respondents (63%) still receive financial support from their parents that prevents them from going into debt. One in 10 parents revealed that they give their children monthly payments, typically around £240, to help with their living costs and bills, while 25% have taken out credit agreements (like loans and credit cards) on their children's behalf.parents-giving-kids-credit-cards

Generosity leading to generation of "credit virgins"
Noddle estimates that 12% of adults (approximately 7 million people) have no credit history of their own. This is particularly common among young adults, with 40% of people in their 20s and 18% of those in their 30s never having taken out any form of credit. This means that they have no credit record of their own, which could make it particularly difficult to obtain a credit card or loan in the future, as lenders use this information to assess applicants' suitability. Although many parents have the best intentions, the irony is they could be putting them [children] at a financial disadvantage in the longer term," says Tom Ilube, founder of Noddle, in a statement.  "Companies look at your credit report to help make decisions about whether to lend you money based on the information it contains, so it's important to build up a credit history to improve your rating."

Simple steps to build up a credit history
If you're a young adult with no credit history, you can easily start to build one by following a few simple steps. First, register on the electoral roll, as this will enable potential lenders to verify your identity and address. Second, any mobile phone contract should be placed in your own name -- rather than in that of a parent -- and the bills should be settled on time each month.

Finally, consider taking out a credit card. If you have a thin credit history, apply anyway -- many credit card providers have cards designed for those with bad or thin credit. By spending a little on the card each month and paying off the balance in full, this will contribute to a favourable credit history. Lending companies will be more likely to trust you, and you'll be able to get more credit by yourself without relying on your parents.

See related: 4 ways to teach children about credit, Young bloggers share the money lessons they've learned

Published: 6 June 2012