USA Today has posted an article that discusses how you can help your college-age child to build a healthy credit score. Thanks to a new law that was put into effect last year, credit card companies are barred from issuing cards to people under 21 unless they can prove they are able to make the monthly payment. This is designed to prevent college students from going so far into debt that they won’t be able to pay it back and will be penalized by having difficulty with things like getting an apartment or qualifying for a car loan…and even getting a job.
Even if your child is under 21, you as a parent can still help them build a positive credit history. Here are some of the ideas Sandra Block, the author of the article, mentions:
-You add your child to your current credit card as an authorized user.
By doing this, you are still responsible for the card’s payments, but your child can use the card. If your child misuses the card you can have them removed as a user before too much damage is done. When you make payments, it will show up in the child’s name too, and help them build a good credit score.
However, there are some downsides. If your child racks up a massive bill, or you lose your job, and you can’t possibly afford to pay the bill, both of your credit scores will suffer. Another problem is the limit of available credit. If you have had your card for awhile you can have close to $10,000 for your credit card limit. Parents need to consider if their child is responsible enough to wisely handle that much of a credit limit before adding them as an authorized user.
-You can co-sign a credit card with your child.
The card will be in the child’s name, but you will also receive monthly statements and the credit limit cannot be raised without your approval. Because the card is in your child’s name the limit will most likely be a good bit lower than your credit card, limiting the damage they can do.
But if your child can’t make the payments, as a co-signer, you are responsible for paying. If there is a late or missed payment, or if your child goes over the credit limit, it will also reflect negatively on your own score. Also, you and your child would share control of the account…meaning that you can’t close it without your child’s permission. Because of this, it’s generally a much better idea to add your child as an authorized user to your own card.
“If you put your student on your existing credit card as an authorized user, you have full control of that card,” she says. “If Junior doesn’t abide by the rules, I don’t want to be asking his permission to close the card.”
-Find out if your child can qualify for a credit card.
The card may have a very low limit, but sometimes students with part time jobs may be able to qualify for a credit card without a co-signer.
-Get a debit card for your child.
Debit cards won’t help your child develop credit but it will help you monitor their spending and teach them how to handle money responsibly. Teaching money management is a good first step to assure that when your child won’t go crazy when they get a credit card.
If you have had problems with your credit score, such as reporting errors, and have further questions and concerns, feel free to contact us through our website or by calling 205-879-2447.
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