3 Easy Steps to Build Your College Student Credit
Aubrey Clark
September 26, 2008
Almost all parents will face the chore of having to deal with their child´s lack of credit. Yes, the dreaded cosigning question. If you are able to stroke a check for that new car, make the down payment for the new house, or stroke a check for that extra semester at college this article may not interest you. However, for average Americans like me who are sweating $4 gas prices: listen up. This can help you avoid cosigning and give your child a good start into adulthood.
First things first... You probably already know this, but it needs to be said: If you cosign for your child, and he or she has a bad pay history, it WILL ruin your credit. Working in the mortgage business, I have seen a lot of credit bureaus where parents have cosigned for their child. I have also turned down a large percentage of those parents for mortgages as a result of a cosigned accounts for their children or a relative. If you DO cosign for a child or relative, NEVER let them make the payments; always have them pay you and then you make the payments.
When it comes to our children, as good parents, we almost feel obligated to give our kids a good start in the world. So, how do we help the kids build their credit and protect our credit at the same time? Unfortunately, we have to wait until they are 18 to begin building their credit. However, the big ticket items that they ask you to cosign for usually come well after they have turned 18. Your goal is to have sufficient credit built for them by this time, here are a few tips:
1) Charge It – When kids leave for college, your role as a parent is basically reduced to that of a human ATM. While your kids are at college, you will be asked to buy all or some of the following: meal cards, books, laptops, gas, ...you name it. You should use these purchases to your advantage. When you child leaves for college, open a credit card in your name and his or her name and DO NOT give it to the child. Simply charge all of the items that you will be paying for anyway to the card and pay the card in full each month.
2) The First Car – Most of us will buy or give our kid a car before they leave for college. If you give the kid a hand-me-down car, or if you pay cash for it, you should take a personal loan on the car. Depending on the value of the car, go down to the local bank or finance company and take out a secured loan in the child´s name, and yours if necessary.
If the car cannot be used for collateral, use the cash you were going to put down or pay for the car as collateral. DO NOT let the child make these payments, they WILL mess it up. Now, all you need to do is make payments for six months or so and then pay off the loan. Presto! You have now built an installment account on their credit bureau. Sure, it cost you a couple a hundred bucks in interest, but that´s the price you have to pay to build credit.
3) More credit cards – One of the most important aspects that creditors look for when they are considering whether or not to issue credit is the length of time the borrower has been in the bureau. If the credit on the bureau is relatively new, even if it´s good, this doesn´t prove the ability to manage debts over an extended time. The way to get around this is to open two credit card accounts SOLEY in the child´s name when they turn 18. You will most likely need to use a student card (harder to qualify for and high fees) or a secured credit card.
My recommendation is to use the secured cards. You will have to send in $300 per card but it´s YOUR money that sits in a savings account. Do NOT use these cards, and don´t dare give these cards to the child. Rip these cards up and forget about them. These cards will establish an individual account that will build history in the bureau for them. They do NOT need to be used in order to establish your goal. By the time your children are 20 years old, they will probably have a higher credit score than you!
Aubrey Clark is an Author and editor for Direct Banc, which features a credit card with airmiles directory. Aubrey is a financial expert who has spent over twenty years working and training in financial markets. He current project is an airline miles credit card tutorial for business travelers.
First things first... You probably already know this, but it needs to be said: If you cosign for your child, and he or she has a bad pay history, it WILL ruin your credit. Working in the mortgage business, I have seen a lot of credit bureaus where parents have cosigned for their child. I have also turned down a large percentage of those parents for mortgages as a result of a cosigned accounts for their children or a relative. If you DO cosign for a child or relative, NEVER let them make the payments; always have them pay you and then you make the payments.
When it comes to our children, as good parents, we almost feel obligated to give our kids a good start in the world. So, how do we help the kids build their credit and protect our credit at the same time? Unfortunately, we have to wait until they are 18 to begin building their credit. However, the big ticket items that they ask you to cosign for usually come well after they have turned 18. Your goal is to have sufficient credit built for them by this time, here are a few tips:
1) Charge It – When kids leave for college, your role as a parent is basically reduced to that of a human ATM. While your kids are at college, you will be asked to buy all or some of the following: meal cards, books, laptops, gas, ...you name it. You should use these purchases to your advantage. When you child leaves for college, open a credit card in your name and his or her name and DO NOT give it to the child. Simply charge all of the items that you will be paying for anyway to the card and pay the card in full each month.
2) The First Car – Most of us will buy or give our kid a car before they leave for college. If you give the kid a hand-me-down car, or if you pay cash for it, you should take a personal loan on the car. Depending on the value of the car, go down to the local bank or finance company and take out a secured loan in the child´s name, and yours if necessary.
If the car cannot be used for collateral, use the cash you were going to put down or pay for the car as collateral. DO NOT let the child make these payments, they WILL mess it up. Now, all you need to do is make payments for six months or so and then pay off the loan. Presto! You have now built an installment account on their credit bureau. Sure, it cost you a couple a hundred bucks in interest, but that´s the price you have to pay to build credit.
3) More credit cards – One of the most important aspects that creditors look for when they are considering whether or not to issue credit is the length of time the borrower has been in the bureau. If the credit on the bureau is relatively new, even if it´s good, this doesn´t prove the ability to manage debts over an extended time. The way to get around this is to open two credit card accounts SOLEY in the child´s name when they turn 18. You will most likely need to use a student card (harder to qualify for and high fees) or a secured credit card.
My recommendation is to use the secured cards. You will have to send in $300 per card but it´s YOUR money that sits in a savings account. Do NOT use these cards, and don´t dare give these cards to the child. Rip these cards up and forget about them. These cards will establish an individual account that will build history in the bureau for them. They do NOT need to be used in order to establish your goal. By the time your children are 20 years old, they will probably have a higher credit score than you!
Aubrey Clark is an Author and editor for Direct Banc, which features a credit card with airmiles directory. Aubrey is a financial expert who has spent over twenty years working and training in financial markets. He current project is an airline miles credit card tutorial for business travelers.
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