Kid has poor credit from student loan non-payment years ago, but is near paid off now. Paying all bills on time including a car loan but none are reported to bureaus.
Secured CC? I cosign a small loan? What are the best options for him?
Thanks!
Have him get his own credit card, which he uses regularly for something and pays off every month. (He can set up autopay for his cell bill or gym membership or transit pass, etc.) This will start the ball rolling with getting him some credit history. The rate on the credit card won’t matter (won’t be good due to his poor credit history), since he will be paying it off every month. He shouldn’t have a problem getting a card if he has a job.
My daughter at 25 has established a close to 800 credit score, with only credit and debit cards (no installment loans of any kind - car or tuition).
One of the usual suggestions is to get a secured credit card, where the security deposit is a deposit account at the bank issuing the card (with a credit limit the size of that account). But there may be added fees and costs. Use the card and pay the full bill every month to build up a “paid on time” record until it is possible to get a regular card.
@kiddie thank you. He does have a job - do you think a regular card or a secured? He’d probably prefer a secured (he’s cautious now), but does that have as high an impact on credit score as a regular one?
@ucbalumnus thanks. I see a few with no annual fee that report to all 3. That might be the easiest start.
I would go with an unsecured one and again have it used only to pay bills he would otherwise be paying another way each month (like a utility bill). Of course get one without any fees.
How you improve your credit score is to get more forms of credit - credit card, car loan, mortgage, savings and checking accounts. My daughter only has 4 items of credit (car loan, 2 credit cards, student loan) and her credit score has gone from ~625 to 740 in less than one year. Now it goes up about 5 points a month.
It takes about 3 months of paying a credit card for it to change the score. I did her taxes with Credit Karma one year and now she gets monthly reports from them, showing her accounts and score. I think it is a good tool to show ‘how you are doing.’
I will suggest the unsecured card for now, though the ones without fees apparently do turn people down sometimes, if that happens there are some that don’t check credit at all - got to be sure they REPORT though.
You could make him an authorized user on one of your oldest cards that reports for authorized users in addition to him getting his own card. I’d recommend a secured card to start. In addition, it may be worth a try once he’s paid off the student loan to have him challenge the negative reporting. I’m not familiar with student loan reporting but this is a quite successful strategy with credit cards of all types once you’re paid off. They usually don’t bother to respond to the challenge and are happy to stop reporting the account entirely.
With bad credit, it may be hard to get a regular credit card. He can try to get a regular one first, and then get a secured one if he is not successful. However, the inquiries from trying to get a regular one could worsen his credit score some more for some time.
Does an authorized user get the good reporting that his own card would get, though?
I see it varies. Going to look into that.
@OHMomof2 Yes. My D is an authorized user on two of my oldest cards and has been for several years. As a teenager she has an 800 credit score. At 18 she got her first credit card on her own and has a nice credit limit, which keeps going up after every 3 months of on time payments.
Seems like kind of a no-brainer to do that then. He doesn’t even need to carry the card, I can put it in a drawer, no?
Our kids were each made authorized users on cards I opened with smaller limits (maybe $2500). It was for my peace of mind that they could get a plane ticket or repair a car if get out of most medium size problems. The side benefit was they both ended up sharing my >800 credit score. Neither has ever had any problems getting credit cards.
Neither has ever had any loans. They’ve been very responsible, paying balances in full every month and never have finance or interest fees. S has signed for CCards for the bonuses and has a pretty hefty stack of them. He prefers those with no annual fee.
An unused card with no balance will show up as “no balance” every month on the credit report. This is unlikely to be as good as “paid as agreed” every month for the purpose of improving credit score.
Unless you actually mean making him an authorized user of a card which does get used and paid off every month.
As long as someone is using the card at least every 6-12 months, it’s OK. If it goes too long with no use, sometimes the CC issuer will cancel it and notify cardholder. I have one I don’t use often on autopay for the $.99/mo Apple storage charge.
I use it all the time, for every purchase I can. It gets great travel rewards.
He has Netflix and stuff like that the one card could be hooked up to pay, if it matters that his particular card be used.
I put my sister on my capital one as an authorized user. I pay my balances in full monthly and I don’t run the balance much past 1/3 of the limit. It took a year but she was able to get her own.
My d got a secured credit card in college through usaa. Once she graduated and got a job she applied and got her own cc with quite a high limit.
“does that have as high an impact on credit score as a regular one?”
First you focus on credit history, later on score.
Banks can look at bank account balances, to decide if you’re a good risk. When D1 got a large advance on her stipend for 9 months abroad, the bank didn’t flinch. I’d say, sit down with a seasoned rep at your banks and see what they advise.