Does Making a Family Trust Affect Your Credit Score?

A family trust allows your children to inherit property without probate issues.

A family trust allows your children to inherit property without probate issues.

Many couples set up a family trust to prepare their children for a coming inheritance. The trust allows heirs to inherit property outside of the legal tangles and expense of probate court. Although a trust helps get your finances in order, it won't have any effect on your credit score, good or bad. These scores take your past performance on loans and credit accounts as a basis for their evaluation of your creditworthiness.

Trust Property

A family trust is a method of holding property in a separate legal entity. The property can be land, investments or valuables such as jewelry or art. Any assets you transfer to the trust become the legal property of the trust. Although you may serve as the trustee, you no longer have legal title to the assets as an individual. If the trust is revocable, the grantor (creator) can change its terms at any time. An irrevocable trust cannot be changed once it is in force, except under limited circumstances.

Credit Scores

Your credit score measures your ability to handle loans and debts. Three major companies issue credit reports: TransUnion, Equifax and Experian. Each has its own method of creating a credit score. Major factors include the number of late payments on your record, the status of past-due accounts, the number of credit accounts and loans you have, and the ratio of debt-to-credit limits on your revolving or credit card accounts. In addition, bankruptcies or court judgments against you will affect your credit score negatively.

Assets and Credit Scores

The size of your bank account or the value of your assets don't figure into a credit score. If you have a problem with on-time payments, or try to open a lot of credit card accounts at once, the credit score will reflect that no matter how wealthy you are. Banks and brokers do not report your account information to credit evaluators. Nor does the value of real estate or other property factor into credit reporting.

Trusts and Loan Applications

A credit reporting agency does not measure the creditworthiness of trusts, only individuals. If you do control a family trust, however, this information may be of interest to a lender. A loan or mortgage company may compare your assets to your liabilities and factor that information into a decision on an application for credit. A revocable trust in which you have control of the assets as the trustee may count as a resource you can draw on, if necessary, to help pay back the loan. Lenders can also consider your salary, occupation and any legal obligations such as back taxes and child support -- information not carried on any credit report.


About the Author

Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.

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