Does a Living Trust Affect Credit?
A living trust is a legal arrangement by which a person uses a certain property, but doesn't actually own it. While a living trust doesn't directly affect your credit score or your ability to obtain new forms of credit, it can have an indirect impact. Talk to an attorney if you're considering a living trust and need advice about how it might impact your credit.
Other People Are Reading
-
Living Trusts
-
Living trusts, sometimes known as inter vivos or revocable trusts, are legal entities that can own property. When you create a living trust, you transfer ownership of some or all of your property to a trust. The trust itself is run by a person known as a trustee. The trustee manages the property the trust owns on behalf of the beneficiary, who is the person allowed to use or benefit from the trust's property.
Credit
-
Credit is your ability to convince a lender to give you loan. Whether you're applying for a car loan or a credit card, a lender wants to know whether you have good credit and will be able to repay the loan on time. Your credit report is a collection of information about your past history using credit, repaying loans and paying off debts. Every time you apply for new credit, make a payment on a loan or take other actions involving credit, this information is included on your credit report.
-
Credit Scores
-
Your credit score is separate from your credit report, though the two are closely linked. To determine your credit worthiness, creditors use credit scores as a quick evaluation. A credit score is a number based on the information in your credit report. The higher the score, the better credit you have. Though companies use different formulations to determine a credit score, scores are generally based on your payment history, the duration of your credit lines, how many forms of credit you have and the amount of money you owe.
Trusts and Credit
-
Trusts own property, and credit is your ability to obtain new loans, so the two are not directly related. However, if you are the beneficiary of a living trust, your credit may be indirectly impacted by the trust. For example, if the trust owns cash and you receive a periodic payment, those payments may help you pay your debts on time and thus, increase your credit score. Moreover, a trust may own a vehicle that requires car loan payments. In this case, you do not owe the money and do not make payments, so regular payments will not be indicated on your credit report and your score will not be affected.
-
References
- Photo Credit Jupiterimages/Pixland/Getty Images
