How do you go about helping your college kids establish credit?

[DB in NJ]

My 20 year old has applied for a store credit card and got turned down because he has no credit :glare: I really hate that, but I understand it.

 

So, how do we go about getting credit established?

[TravelingChris]

I really don't know nowadays and will be paying attention to the answers.

[creekland]

I had oldest send in one of those free Discover Card mailings that came to him last summer. The card just has a $500 limit, but there's no annual fee and no interest for some time period. We used it to buy books. I've heard that they get a better credit rating for paying it off in installments rather than all at once, and, since there's no interest rate, I've been paying his books off monthly.

 

I suppose it's not helping HIM get credit since I'm paying the bill for some of his books, but... technically it is building up his credit for later in life when he will need it. He also has the card just in case he runs into a small emergency. Otherwise, he doesn't use it.

 

He's had mailings come in for cards with fees. We've tossed those.

[QueenCat]

My husband and my younger son have a joint credit card. That's how the bank told us to do it to help younger ds build credit. Older ds got a cc before the rules changed so he didn't need someone to do a joint with him.

[TXBeth]

Different perspective...I recommend NOT helping a college student establish credit. Instead, help him establish an emergency fund and a good budget, and encourage him to save for purchases instead of using credit.

[Hwin]

A small loan paid back over a few months will help establish credit. It stinks because then you are paying interest for it, but it worked quickly for us.

[KristinaBreece]

Different perspective...I recommend NOT helping a college student establish credit. Instead, help him establish an emergency fund and a good budget, and encourage him to save for purchases instead of using credit.

 

:iagree:

[Disney Dreaming]

My husband and my younger son have a joint credit card. That's how the bank told us to do it to help younger ds build credit. Older ds got a cc before the rules changed so he didn't need someone to do a joint with him.

 

This is what we did with dd(22) when she started college at 18 and have done with ds(18). When dd turned 22 and graduated from college we had dh taken off the card.

[cstitches]

It's interesting (and wonderful) to see parents being proactive about their kids' finances. My parents never had any involvement in my finances, when I was little or after I got a bank account and credit card, and never taught me anything about budgeting (granted, they didn't seem to be too great at it themselves...).

 

When I was in community college and not working, their involvement was giving me money for food and gas, but I was otherwise responsible for managing that money and for reserving my credit card for car maintenance.

 

Then for the three years I worked before going back to school, I was completely financially independent and had to figure out how to keep an effective budget, build my savings, pay off two cars, and manage my credit card to build credit but not drown in debt. I was even managing a boyfriend's finances for some time, which is where the second car came in (also the best financial shape he was ever in...). I also saved up enough money to not have to work now that I'm back in school to finish my degree.

 

So luckily, even without my parents' involvement, I was fine.

 

On the other hand, my step-sister (who became family just recently), went through racking up the limit on a credit card (or two, can't remember) as well as having some legal expenses and owing her dad money who kept trying to get her on track. So, not everyone can be left to their own devices.

[Anne]

My dds started out with secured visa credit cards. Their limits equaled the amounts in the bank which could not be touched. It worked well for them.

 

Anne

[KristinaBreece]

It's interesting (and wonderful) to see parents being proactive about their kids' finances. My parents never had any involvement in my finances, when I was little or after I got a bank account and credit card, and never taught me anything about budgeting (granted, they didn't seem to be too great at it themselves...).

 

When I was in community college and not working, their involvement was giving me money for food and gas, but I was otherwise responsible for managing that money and for reserving my credit card for car maintenance.

 

Then for the three years I worked before going back to school, I was completely financially independent and had to figure out how to keep an effective budget, build my savings, pay off two cars, and manage my credit card to build credit but not drown in debt. I was even managing a boyfriend's finances for some time, which is where the second car came in (also the best financial shape he was ever in...). I also saved up enough money to not have to work now that I'm back in school to finish my degree.

 

So luckily, even without my parents' involvement, I was fine.

 

On the other hand, my step-sister (who became family just recently), went through racking up the limit on a credit card (or two, can't remember) as well as having some legal expenses and owing her dad money who kept trying to get her on track. So, not everyone can be left to their own devices.

 

:iagree:

 

I'll be the first to admit that I should not have been left to handle my own finances when I was 17-21. I had no clue. If someone had paid attention (or if I had known to ask for help), I could have saved myself a LOT of misery. And interest. ;)

[creekland]

:iagree:

 

I'll be the first to admit that I should not have been left to handle my own finances when I was 17-21. I had no clue. If someone had paid attention (or if I had known to ask for help), I could have saved myself a LOT of misery. And interest. ;)

 

Part of our high school curricula is Dave Ramsey's high school course. It changed the way my oldest thought about money. This year I expect the same for my middle and youngest.

 

I am not 100% in agreement with DR, but I am in enough agreement to have them watch him speak. We just discuss where we differ.

[TravelingChris]

I think whether one should have credit or not is more important than whether to have a credit card. Credit has become much harder to get with the Dodd-Frank bill and it is more important nowadays than in the past. In order to get an apartment, job, insurance; you often have to have good credit. It also depends on what type of lifestyle your child will lead. My middle, for example, is very ambitious and the kind of life she wants is only possible with good credit. I am not talking about having credit cards but they probably will be part of the deal because she needs to travel.

[Momma2Many66]

Back when we still had credit cards prior to Dave Ramsey I had an excellent credit rating and put my then 16 or 17 year old daughter ( I can't remember her exact age now)on my credit card so that she could aquire my credit rating. I can't remember what they call it, but I had her under me in some sort of co-signing or joint agreement or something. I understood that if she made purchases willy nilly I would be responsible for them, but she has always been very responsible and we never had a problem with that.

 

She now has excellent credit and it sure came in handy when she got married two years ago and bought her first home. They were able to get a good fixed rate mortgage from the great credit report.

 

So, you could try putting her on your card if you have very good credit, I think Suze Orman recommended it at one time, I don't remember where I heard this and decided to do it, but I think it was from Suze Ormand, though I could be wrong about where I heard it first mentioned.

Edited October 14, 2011 by Momma2Many66

[Cedarmom]

:

Different perspective...I recommend NOT helping a college student establish credit. Instead, help him establish an emergency fund and a good budget, and encourage him to save for purchases instead of using credit.

:iagree:

[MissKNG]

When I went to college, my parents gave me a credit card that I used to buy books, school supplies and the essential things I needed (toothpaste, shampoo, etc) and that established my credit. I was responsible and didn't abuse it, so it worked out very well for me.

[QueenCat]

Different perspective...I recommend NOT helping a college student establish credit. Instead, help him establish an emergency fund and a good budget, and encourage him to save for purchases instead of using credit.

 

You need a decent, established credit history to get a mortgage with a decent rate. One of the guys who works with dh learned this the hard way. Paid for everything in cash, from the time he was an adult. Great savings, never had a credit card. Makes about $70k/year, saved 20% for downpayment on a house, and the best rate he could get on a mortgage is around 8% (this past summer). Why? NO Credit History. So, now he has a car loan and a credit card, and will try again in about two years. I just got one for 4.25%. We make more but we only put 10% down on the initial loan (this is a refinance).

[QueenCat]

It's interesting (and wonderful) to see parents being proactive about their kids' finances. My parents never had any involvement in my finances, when I was little or after I got a bank account and credit card, and never taught me anything about budgeting (granted, they didn't seem to be too great at it themselves...).

 

My parents never really talked about money or budgeting, and I was lost when I struck out on my own. Which is why I really made the effort to teach my boys about money and financial planning.

[Lisa3033]

If you have decent credit, add him as an authorized user on your cc.

 

I will say there is no reason a 20 year old with family support should need credit. Yes, you do need established credit if you're shopping for a mortgage but that's likely a few years off at least.

Edited October 14, 2011 by Lisa3033

[Photo Ninja]

My dc all got a cc with their college bank accounts. It was offered to them along with the bank account. They have jobs, so that may make a difference. The limits are low and interest rate is high, but it allows them a chance to charge some of their online purchases, then pay them off. Their student loans gave them a good credit rating even though they have not paid anything. The bank rep said that even though nothing is due on the loan, it is reported as up to date, so it gave them a good rating.

 

I think it is fine that a college age student has a cc as long as he knows how to manage it and doesn't give in to the temptation to buy just because he can.

[gardenmom5]

store aren't the best place to start with. try a visa/master card/etc. first.

 

for our girls, when they went off to college, dh helped them get visa cards. books/airline tickets to-from school/etc. were purchased on their credit cards. they also had school loans in their names.

 

they now get offers in the mail, but are mostly self-supporting. (2dd is in grad school and living at home.)

[Night Elf]

Dd19 banks with Wells Fargo. She got a secured credit card when they wouldn't give her a regular one. Her limit is $300. The bank said they usually reevaluate about 6 months. She pays it off each month, sometimes twice a month since she banks online.

 

And yes, we're teaching her good financial skills. She is better with her credit card than I am.

[Night Elf]

You need a decent, established credit history to get a mortgage with a decent rate.

 

:iagree: My dd19 has a couple of friends who are trying to find an apartment. They've seen 3 places now, in their price range, that require good credit. They are very frustrated. I guess they'll just keep looking. The other young adults that she knows who are not away in college live with their parents because they can't afford to move out. It hurts my heart to see them all struggling so much.

 

Oh, and 2 of her friends are living out of their car because they got kicked out of an apartment. The complex found out that 6 people were living there and they all got evicted. They don't have the money to get another one.

[creekland]

You need a decent, established credit history to get a mortgage with a decent rate. One of the guys who works with dh learned this the hard way. Paid for everything in cash, from the time he was an adult. Great savings, never had a credit card. Makes about $70k/year, saved 20% for downpayment on a house, and the best rate he could get on a mortgage is around 8% (this past summer). Why? NO Credit History. So, now he has a car loan and a credit card, and will try again in about two years. I just got one for 4.25%. We make more but we only put 10% down on the initial loan (this is a refinance).

 

:iagree:

 

If one is planning on getting a house with a mortgage, establishing credit is essential and it's easier to do when younger rather than older.

 

If one is planning on renting until they save cash for a house, then it's not as necessary although we check credit on all our potential tenants (as owners of nice rental properties). If we had a potential tenant with zero credit it would be a knock against them IMO. We have other options.

 

Personally, I prefer my guy have a credit card in case he needs it for an emergency. Getting cash isn't always as easy and debit cards can have their own issues if they get stolen.

[Wabi Sabi]

If you have decent credit, add him as an authorized user on your cc.

 

I will say there is no reason a 20 year old with family support should need credit. Yes, you do need established credit if you're shopping for a mortgage but that's likely a few years off at least.

 

As stated by others, the obvious is an apartment. Mortgages may be years away, but unless they plan on living at home until they've saved enough money to purchase a home then they're going to need credit.

[Sevilla]

IMO every 20 yo should be building good credit. It's not about debt, it's about planning for the future and realizing that good credit takes a few years to build - so if the college student plans to live independently and move into 'adult life' post-graduation, they need to start building credit during college. "No credit history" is a serious black mark against a person. One of the factors in a high credit score is length of credit history - an adult whose history starts at age 18 has an advanage over an adult who doesn't have any credit history prior to age 23.

 

The easiest way to do that is through a credit card (I have never carried a CC balance and have had a card since I turned 18, but my credit score is so high that we have always qualified for the lowest rates on everything). By 'lowest rates' I am not necessarily referring to loans (but it does come in handy should you need a car loan or mortgage). DH and I have only had one car loan in our entire marriage, and it was for a small percentage of the balance of the car's price. The dealer was shocked we'd take out such a small loan AND ask for a short repayment period (2 years, though we paid it off in 18 months). Hopefully we will never need a car loan again, and we recently saved up close to $20k to purchase a used car for our family to get around in. But should something happen and we needed a reliable vehicle with a partial loan, we can easily get a low rate. When we bought our first house, we used a 'first time homebuyer program' that required good credit and several thousand dollars in savings as two of the qualifying factors. We were able to take advantage of that program both b/c we are savers AND had established good credit while we were in college (since we bought our first house barely a year out of school).

 

Here are some the non-debt ways that good credit is important and that bad credit makes you pay more:

1. Car insurance. Our car insurance company checks your credit and bases your rate in part on that.

2. Job hunting. Many corporations run a credit history on potential candidates. If you have no history to show for yourself, that can be a black mark against you in the hiring process - especially if they have two (or more) equally qualified candidates, but one has excellent credit history, one has no credit history, and one has shoddy credit history.

3. Apartment leasing. You need to live somewhere, and landlords often check credit history of their applicants to assess their reliability in making monthly payments.

 

I like Dave Ramsey's advice a lot, but some of it doesn't make a lot of sense to me (such as his followers encouraging no credit history). Why can't you teach budgeting, saving, emergency fund AND using a credit card for gas/travel only (since around here filling up with a debit card = an additional $50 temporarily charged on your account as a 'holding fee' and booking a hotel with a debit card = additional charges until after you check out). Teach them to pay it off every month and to never.ever carry a balance. Have them use a debit card for the rest of their purchases (or use cash). Teach how to track expenses. Watch them make a few mistakes and learn from them - better to overdraft once or twice in high school/college for miscellaneous expenses and then figure out how to avoid it in the future.

 

I'm a big advocate of checking accounts in high school that mom/dad oversee and a 'training' credit card when you're 18 that the parents gradually back off of once you're 20ish.

Edited October 15, 2011 by Sevilla

[Mommyfaithe]

My 20 year old has applied for a store credit card and got turned down because he has no credit :glare: I really hate that, but I understand it.

 

So, how do we go about getting credit established?

 

Co-sign. Get a low limit cc from a store and have him buy something...then pay it off monthly. Buy another small thing, pay it off.

 

If one store won't give him credit...another might. My dd couldn't get a card at Old Navy, but Kohl's gave her one without me co-signing. try Best Buy, or Target.

 

Good luck