A lot of people my age have kids in college or getting ready to graduate. One of the things that should be top of mind for young people of that age (and by default, their parents) is how do I start to establish credit?
One of the hardest things to do in the “real world” is get people to give you your first chance at something. Getting that first job is tough – you have no experience. Employers want to know that you can already do the job before they hire you. Without verifiable proof – a portfolio, a track record of success doing said job, its tough.
Creditors feel the same way. Without a way to verify that you are a good credit risk – you ain’t getting no money. The resume or portfolio that lenders look to is your credit report. If until now, your parents have paid for most things or the bills you have paid don’t report to the credit bureaus (that costs them money) you are out of luck. You simply don’t exist to lenders. You are nobody. Harsh.
But DO NOT DISPAIR! There are some easy things you can do to fix this as a young adult or the parent of one.
TOP 4 Ways to Build Credit
- Apply for a secured credit card https://www.nerdwallet.com/best/credit-cards/secured
- Add you child as an authorized user to your credit card (assuming you pay it promptly). They don’t have to use it, but your payment history will rub off on them.
- Co-sign for a loan or credit card (use caution. If you kid has ever been grounded for more than 30-days, you might not want to do this)
- Credit Builder Loan – This is affectively a loan that gets put into the bank, kind of like a forced savings account. Your monthly payments get recorded and at the end of the term, the money gets released to you. This is also a great way to rebuild bad credit. www.learn.self.inc
The credit builder loan is intriguing to me. What I like about it is that it forces good habits around budgeting and saving. I also like it that a young adult can do it on their own. Just another step towards being self sufficient and the confidence that comes with it. It’s never to early to start good habits as it relates to money. Bad ones are hard to break.
If your teenager or college student needs an education in all things personal finance, reach out to me! I will be conducting an 8 module class on everything from FICO to Fiduciary and everything in between.