Building credit for the new 18-year old

[Plucky]

Ds will be 18 soon. He is very good with his money, very responsible, saves a ton, has a good job, etc.

 

What is the best method for a new adult to start building credit? Thanks!

[Lolly]

We got our dd18 her own credit card. It has a $1000 max. I am listed on it also, but she is primary. It is linked to her checking account, and she can view purchases, bills, and pay online. It makes it really easy for her to keep up with how much she has spent. Many places here will not take a personal check any longer. A debit or credit card is pretty much a necessity (if you don't want to carry large amounts of cash at tiems). I have an intense dislike/distrust of debit cards. Plus, the credit card allows her to build credit.

[Plucky]

We got our dd18 her own credit card. It has a $1000 max. I am listed on it also, but she is primary. It is linked to her checking account, and she can view purchases, bills, and pay online. It makes it really easy for her to keep up with how much she has spent. Many places here will not take a personal check any longer. A debit or credit card is pretty much a necessity (if you don't want to carry large amounts of cash at tiems). I have an intense dislike/distrust of debit cards. Plus, the credit card allows her to build credit.

 

That's a good idea. He does have a debit card for online purchases and he nor my 14dd have had a problem with debit cards. So he should inquire at the credit union he banks at?

[Truscifi]

I got a small loan ($3000) and put it in a savings account. I scheduled automatic withdrawals to pay to loan payments, added the difference in interest, which was about $250, and forgot about it. 18 months later I had excellent credit. I still do today.

 

My parents are bankers and this was their idea.

[Plucky]

I got a small loan ($3000) and put it in a savings account. I scheduled automatic withdrawals to pay to loan payments, added the difference in interest, which was about $250, and forgot about it. 18 months later I had excellent credit. I still do today.

 

My parents are bankers and this was their idea.

 

That is a great idea. Did your parents co-sign?

[Plucky]

I got a small loan ($3000) and put it in a savings account. I scheduled automatic withdrawals to pay to loan payments, added the difference in interest, which was about $250, and forgot about it. 18 months later I had excellent credit. I still do today.

 

My parents are bankers and this was their idea.

 

Oops, he said he doesn't want to pay interest and lose $250 or whatever. He's very frugal.

[KellyGirl]

If he's in college, a student credit card should be pretty easy to come by. Times may be changing, but 10-15 years ago there were frequently credit card vendors set up at the student union at my school. And they will extend credit to anybody who's in school.

[Plucky]

If he's in college, a student credit card should be pretty easy to come by. Times may be changing, but 10-15 years ago there were frequently credit card vendors set up at the student union at my school. And they will extend credit to anybody who's in school.

 

I hope credit card companies are discontinuing the credit card push for college students. He's not 18 yet. He's not interested in a lot of credit cards, just building credit. I think we'll probably go talk to his credit union about a secured card, using money put into a cd, so he's atleast earning a small amount on this money.

[Truscifi]

That is a great idea. Did your parents co-sign?

 

No, but they did help me with the application and they knew the branch manager I worked with.

 

Oops, he said he doesn't want to pay interest and lose $250 or whatever. He's very frugal.

 

With interest rates as low as they are now, it should be less than that, or he could get a smaller loan. The difference in credit cards versus an installment loan on your credit score is significant from what I was told. They are weighted differently. Of course, these days I am more likely to eschew credit altogether and simply save up and pay cash.

[KellyGirl]

I'm pretty sure he won't be able to get any kind of a card in his own name until he turns 18. And a kid who isn't interested in having a bunch of cards is the only kind of kid I would ever let have a card.

 

I'm not sure that a secured card would build credit as effectively as an actual credit card. I (who was just told by a mortgage consultant that she has never before us seen a couple where both people have credit scores over 800) strongly suggest having him get a student card like this then call the company and ask them to lower the credit limit if its higher than he is comfortable with. Use the card for gas, or something basic like that and make sure the money is set aside to pay it all every month. That's what I always did. It will establish his credit and make it easier to get a car loan or something like that when he needs to.

[tntgoodwin]

No need for a credit score... (Aka the I Love Debt score). Easier to just not start. :)

[Plucky]

No, but they did help me with the application and they knew the branch manager I worked with.

 

 

 

With interest rates as low as they are now, it should be less than that, or he could get a smaller loan. The difference in credit cards versus an installment loan on your credit score is significant from what I was told. They are weighted differently. Of course, these days I am more likely to eschew credit altogether and simply save up and pay cash.

 

I didn't know that. I think we'll go talk to someone and ask which is better in building credit. I bought a car with my mom co-signing. My dh got a secured credit card. Ds and ds don't want him to be locked into car payments at this age.

 

He actually deposits all his checks in his accounts, and lives off his tips. He only uses his debit card for online purchases. I am thankful he is so smart headed about money.

[Plucky]

I'm pretty sure he won't be able to get any kind of a card in his own name until he turns 18. And a kid who isn't interested in having a bunch of cards is the only kind of kid I would ever let have a card.

 

I'm not sure that a secured card would build credit as effectively as an actual credit card. I (who was just told by a mortgage consultant that she has never before us seen a couple where both people have credit scores over 800) strongly suggest having him get a student card like this then call the company and ask them to lower the credit limit if its higher than he is comfortable with. Use the card for gas, or something basic like that and make sure the money is set aside to pay it all every month. That's what I always did. It will establish his credit and make it easier to get a car loan or something like that when he needs to.

 

Thanks for the link. I hate BofA, but I will take a look at it.

[Plucky]

No need for a credit score... (Aka the I Love Debt score). Easier to just not start. :)

 

Well, dh and I have excellent credit scores and have found it to be advantageous for lower interest loans, mortgages, etc. I've heard that employers often check credit scores and so do insurance companies. I don't necessarily think that is right, but it is what they do.

[KellyGirl]

No need for a credit score... (Aka the I Love Debt score). Easier to just not start. :)

 

There is certainly something to what you are saying - but the one (and only) reason I value my good credit is for securing a mortgage. Not a lot of people can swing buying a house with cash, and some apartments even do credit checks. If a young man can avoid a car loan and always pay cash for his cars - GREAT!!! I know I don't ever want to take out another car loan.

 

And to call it an "I love debt score" isn't completely accurate because neither my husband nor I have ANY debt other than our mortgage and we have super high credit scores. We rarely even use our credit cards, but pay them off in 1 billing cycle if we do.

 

So, assuming this boy wants to buy a nice little house for his wife someday and he is responsible with his money, I think it is good idea to start looking at how he can build credit.

[ondreeuh]

:iagree:

 

No credit is the same as bad credit to most creditors. Either way, you're a huge financial risk. Unless you can pay cash for a house, it's important to build credit history.

[thessa516]

So, assuming this boy wants to buy a nice little house for his wife someday and he is responsible with his money, I think it is good idea to start looking at how he can build credit.

 

You don't need a credit score to obtain a mortgage. He'll want a company that does manual underwriting. More and more mortgage companies are offering this type of underwriting thanks to Dave Ramsey.

[gingersmom]

I got a small loan ($3000) and put it in a savings account. I scheduled automatic withdrawals to pay to loan payments, added the difference in interest, which was about $250, and forgot about it. 18 months later I had excellent credit. I still do today.

 

My parents are bankers and this was their idea.

 

I love this idea.

[Truscifi]

You don't need a credit score to obtain a mortgage. He'll want a company that does manual underwriting. More and more mortgage companies are offering this type of underwriting thanks to Dave Ramsey.

 

But there are employers who check credit scores. Also, many landlords check credit before renting to a tenant. I don't think he should rush out and get a car payment or a mortgage - by all means, save up and pay cash - but it is useful to have a good credit score anyway.

[Photo Ninja]

Once they turn 18 yo they can get a credit card as long as they have income. My dc each have college checking and savings plans at a bank, and a Visa card comes with the college banking if they want it. They all got it and are gradually building their credit. They have their monthly Netflix charge on the card, etc. They don't carry a balance, but are building credit.

[stripe]

There are lots of reasons to want a good credit score. It's used for things like setting up utility accounts, isp contracts, renting apts, car insurance, really quite scary!

 

Does he live at home? My electric company started reporting to credit bureaus. If he is going to live on his own, this sort of thing might also factor in.

[Plucky]

There are lots of reasons to want a good credit score. It's used for things like setting up utility accounts, isp contracts, renting apts, car insurance, really quite scary!

 

Does he live at home? My electric company started reporting to credit bureaus. If he is going to live on his own, this sort of thing might also factor in.

 

I remember when we were so poor and we had to pay a deposit for our electricity because we didn't have good enough credit I guess. It was hard to scrape the $150 together 20 years ago.

[ktgrok]

This sounds silly, but it is legal and easy. Get a credit card. Use it to purchase dollar coins from the US mint, with free shipping. Then deposit the coins and use them to pay off the credit card.

 

Otherwise, yes, a credit card where he uses it every month, and pays it off. Honestly, he doesn't need to use it much. Ideally also getting a small loan will eventually help, as it is best to have both revolving and installment credit.

[BamaTanya]

:)

 

Things I learned today:

1. Don't lower your limit on your cc account. Instead, keep your balance low relative to the limit (30% I think was the recommendation.) In other words, if the limit is $500, don't charge more than $150 before paying it off.

(I made a mistake in this -- I tried to build credit in my name after not working for 9 years. One card had a limit of $1500 and I used that for groceries only -- knowing I would be eligible for "cash rewards" -- and then pay the balance. However, I would bump it up to $1200 or so each month -- more than half the limit. Apparently that doesn't "look good." :glare: )

2. If the cc says you don't have a minimum payment due, pay one anyway to force the cc co to report the transaction to the credit reporting bureaus.

3. Installment loans (cars, student loans, mortgages) count separately from revolving credit (credit cards, store cards). :confused: I don't know why. Just noted it.

4. Fewer accounts look better than a more accounts.

 

It turns out, my dh qualifies for a better rate than I do, even though I pay all the bills.

1. His cc balances (even if you don't carry a balance, they look at how high it got between payments) were a much smaller percentage of his limit.

2. His limits are greater because he makes the money -- I only work part-time now.

3. And he's been paying on his student loan for 8 years (more than halfway paid down) while I've only been paying on mine a few months. My balance still looks big compared to the starting principal.

 

Oh well.

 

When I got my first real job, my mom cosigned for me to get a department store card. The limit was low but paying it off each month helped to get the credit ball rolling. I got my own credit card and car loan and then mortgage shortly afterward.

 

There are lots of tips available online, like this site: http://money.msn.com/credit-rating/raise-your-credit-score-to-740-weston.aspx

 

Here's a secure card from a known company:

http://www.capitalone.com/creditcards/mastercard-secured-credit-card/?external_id=WWW_I7354_ZZ_ONL-SE_ZZZGO_ZZ_ZZ_T_SEM2_ZZSE_Z15_247821034

 

hth

[BamaTanya]

This sounds silly, but it is legal and easy. Get a credit card. Use it to purchase dollar coins from the US mint, with free shipping. Then deposit the coins and use them to pay off the credit card.

 

Otherwise, yes, a credit card where he uses it every month, and pays it off. Honestly, he doesn't need to use it much. Ideally also getting a small loan will eventually help, as it is best to have both revolving and installment credit.

 

I heard of someone who did essentially this by purchasing travelers' checks with their credit cards and then depositing the checks into their own accounts. Interesting.

[milovany]

Someone here suggested the following when I asked a similar question recently: Add your son as an "additional user" on one of your credit cards. I went online to Discovercard.com and did this quickly and easily and his card came in the mail a couple of weeks later. It has the same number as my card, but with his name on it. I have no proof that this will "work" in building his credit, but the person who suggested it said it had been her experience.

[Carpe]

Someone here suggested the following when I asked a similar question recently: Add your son as an "additional user" on one of your credit cards. I went online to Discovercard.com and did this quickly and easily and his card came in the mail a couple of weeks later. It has the same number as my card, but with his name on it. I have no proof that this will "work" in building his credit, but the person who suggested it said it had been her experience.

 

This does not build their credit. They are not responsible for the debt because it's your account, so it doesn't matter if it's paid on time, in full, or not.

 

If your children need help getting an account cosigning on a new account will increase their credit, but if they aren't good with their money it will ruin both of your credit scores.

[stripe]

2. His limits are greater because he makes the money -- I only work part-time now.

 

 

I am not sure....not the case for me. I have a cc I opened in the late 90 s with a very small limit. Over the years as I kept it responsibly, they just kept increasing. I use my card a lot and pay it off.

 

I have a widowed relative who has a GM card she's been using for decades. She was widowed 20+ years ago. Anyway GM called recently looking for her husband, and when told he was dead, they freaked out and made her reapply, and she was given a card with a $500 limit, after 30+ years, because apparently he husband was the one getting the credit. My mom advised her to apply for an airline credit card (without fees); she seemed to think this would be easy to get. However, this lady is in a different situation than the OP's son. I thought the treatment was rather shoddy. A lesson too for each spouse to have his/her own cards!

[Twigs]

You can also look for 0% interest loans (since he doesn't want to pay interest) on a purchase your family needs, let him get the loan & make the payments (family purchase = pay with family funds).

 

I have a friend who keeps her credit rating good by doing this whenever possible. She uses money so well that she paid cash for her car and when she moved about 10 years ago, she was able pay cash for her house (a nice, new house).

 

When I bought my last car I could have paid cash, but I took our a loan for about half the cost, just to get some credit history. I think the money I spent on interest was well spent!

 

Best wishes.

[BamaTanya]

I am not sure....not the case for me. I have a cc I opened in the late 90 s with a very small limit. Over the years as I kept it responsibly, they just kept increasing. I use my card a lot and pay it off.

 

I have a widowed relative who has a GM card she's been using for decades. She was widowed 20+ years ago. Anyway GM called recently looking for her husband, and when told he was dead, they freaked out and made her reapply, and she was given a card with a $500 limit, after 30+ years, because apparently he husband was the one getting the credit. My mom advised her to apply for an airline credit card (without fees); she seemed to think this would be easy to get. However, this lady is in a different situation than the OP's son. I thought the treatment was rather shoddy. A lesson too for each spouse to have his/her own cards!

 

Then it might be the timing factor. I didn't have any credit cards for years and was applying for a new card as a SAHM in my own name and without any personal income. My accounts are still new. I thought I was being wise to purchase our groceries on the one that offered bonus cash back, but the ratio turned out to subtract from my score. Even though I paid it off each month. :tongue_smilie:

 

That does seem to be a nasty thing that happened to your relative.

 

We were on the "no credit" bandwagon a few years ago but wound up needing to borrow money from a relative (just for a month) for an unexpected repair. We were embarrassed. We decided that, until we are rich (which 2 educators with 5 dc are unlikely to ever be, lol), we needed to keep a credit cushion. And we both applied individually.

[BamaTanya]

You can also look for 0% interest loans (since he doesn't want to pay interest) on a purchase your family needs, let him get the loan & make the payments (family purchase = pay with family funds).

 

Best wishes.

 

:iagree:

 

That's a great idea! I know appliances and furniture are often offered as 6 mos/no interest, and a store card with a low limit might be easier to get.

[milovany]

I got a small loan ($3000) and put it in a savings account. I scheduled automatic withdrawals to pay to loan payments, added the difference in interest, which was about $250, and forgot about it. 18 months later I had excellent credit. I still do today.

 

My parents are bankers and this was their idea.

 

Can you tell me what the $3000 loan was for? Just trying to figure out what a bank would loan $3000 for without there being a purpose other than putting cash in the bank. Sounds like a great idea ....

[Vida Winter]

Assuming he drives, consider getting a gas credit card from Chevron or Shell. They may even give a discount that way, but it won't be tempting to make other purchases, and he can pay it off each month.