Post by healthy11 on Mar 7, 2009 20:05:20 GMT -5
news.yahoo.com/4-credit-lessons-every-graduate-must-know-124000971.html
I'm not a banking expert, but I've attended a few seminars on the topic of "how to build a good credit score." One of our local banks held a special session in conjunction with a promotion offering "college checking and savings accounts." While not every family may feel comfortable having a teen with a credit card, I thought it would be helpful to share some information. Having a good credit score actually can save you money in many ways, from lower payments on car insurance and credit card rates, to auto loans and mortgage payments. (We just got a car insurance policy renewal, and on the form, in "black and white," it says that "your credit information has earned you a rate that is lower than it otherwise would have been...")
While the exact "formula" for calculating your credit score isn't published, there are certain things that are known about how to create/raise your score with the credit bureaus...some of it is in your control, some not. (For example, length of time you have a credit card and are paying it off makes a difference. I've had one card for over 20 years; there's no way a teen can have that long history, since they aren't even 20 years old! I'll talk about some of the things that a person can control later in this post.)
For those who don't know, until a person becomes 18, the three major credit reporting agencies (Transunion, Equifax, and Experian) don't maintain a credit file. (I used to wonder, when my son got "credit card applications" in the mail, how they got his name if he wasn't 18. As best as we can tell, when he went on an 8th grade school trip to Washington, D.C. we signed him up for a "frequent flier airline program." Some credit card companies just buy lists of names and addresses of potential customers from the airlines, not knowing a person's age or financial status.)
Some banks will allow students, even under age 18, to open checking accounts in conjunction with their parents, and they may have a debit card associated with those accounts, but having a debit card does NOT contribute to a person's credit score....Debit cards limit you to spending money that you already have in the bank (some have a small overdraft protection) but CREDIT is different, and kids can't get unsecured credit cards in their own name until they're 18. Parents may opt to add their kids as an authorized user of an existing credit card, but it's not the same.
In general terms, getting a first credit card and managing it responsibly can really open the door to additional benefits. Sometimes, the first credit card may be from a gas company or other local store, but they're limited in where you can use them. The "more widely accepted" credit card companies such as Visa and Mastercard often offer special "College Cards" (ie, Capital One) or have arrangements with a local or nationwide bank (ie, Chase) so that if you have a savings or checking account with them, you can get a credit card, too. That's what I'd recommend.
From what I've seen, a typical first credit card may have a $500 monthly limit and a high interest rate if you carry over balances from month to month. To maximize the credit score, a person should use it regularly, but stay under 25% of the credit limit if possible, and pay it off in full each month. Truthfully, to stay under 25% of a $500 credit limit, you're talking monthly charges of less than $125, and that won't even buy a college textbook in some schools! (You can charge up to your limit, but it's not good for your credit score.) While you might try to apply for a second credit card at another bank, you also have to realize that more than two "credit applications" in a short period of time lowers your credit score, since it's taken as a signal that "you're needy and looking for more money." (I believe people are allowed 2 inquiries per quarter, aka. every 3 months, or it begins to reduce your credit score.)
If you're able to wait, you might show the first bank that you're able to pay off the card balance in a timely manner each month, then ask if they'll increase the credit limit on that exisiting card. (In my son's case, they raised his limit automatically to $750 after the first 3 months of payments.) If you do want to apply to another credit card company, and wait the 3 months, the credit reporting bureaus should show a good "track record" and it may make another bank more willing to issue a credit card with a higher limit than the first one. (We discovered that fact when we decided to have him get another credit card today. We thought he would have his original credit card A which now has a $750 limit, plus maybe get a new one B with a $750 limit....so he would have a $1500 total credit limit. That would allow him to charge $375 in a given month, to cover his books and fees, and still stay under 25% of his total credit available... Surprisingly, the guy at the bank who accepted my son's application said, "Oh, we can issue you a credit card with several thousand dollars credit limit if you like....you're also approved as a "Tier 2" customer, meaning you'd pay lower interest on balances you'd carry over from month to month. Our "Tier 1" customers pay the lowest, but it's rare for a teen to qualify even as "Tier 2."
Amazingly, at no point have they asked for our son's job history or personal income, although they do ask about household income. The bottom line is, it's not a good idea to use a credit card if you don't have the money to pay off whatever you're purchasing each month, BUT for items like textbooks and such, which have to be bought regardless, a parent can help build their child's credit score by charging them to his credit card instead of their own. (In our case, the address used for where to send the monthly credit card statement is our home, so we can see what other charges have been made, and make sure the bill gets paid on time! I'm not sure if Mr. ADHD would do it on his own, but at least for now, we're helping to ensure his credit history gets off to a good start.)
NOTE: www.annualcreditreport.com only gives free credit reports, but as of July 2011, the following two internet sites are considered legitimate places to get your credit score, according to the "Upgrade Your Life" producers at Yahoo.com:
www.quizzle.com and
www.creditsesame.com
(They're free, but may try to encourage you to obtain a mortgage.)
Bros recommends www.mint.com for financial management info. Other online tools such as www.moneysmartweek.org/ and www.fdic.gov/consumers/consumer/moneysmart/ and ReadyForZero.com and Learnvest.com may also be helpful.
Here's a good site to evaluate different credit card features and offers:
www.credit.com/best-credit-cards/?utm_source=Yahoo&utm_medium=content&utm_content=IB_5&utm_campaign=CC_company_keep_business
I'm not a banking expert, but I've attended a few seminars on the topic of "how to build a good credit score." One of our local banks held a special session in conjunction with a promotion offering "college checking and savings accounts." While not every family may feel comfortable having a teen with a credit card, I thought it would be helpful to share some information. Having a good credit score actually can save you money in many ways, from lower payments on car insurance and credit card rates, to auto loans and mortgage payments. (We just got a car insurance policy renewal, and on the form, in "black and white," it says that "your credit information has earned you a rate that is lower than it otherwise would have been...")
While the exact "formula" for calculating your credit score isn't published, there are certain things that are known about how to create/raise your score with the credit bureaus...some of it is in your control, some not. (For example, length of time you have a credit card and are paying it off makes a difference. I've had one card for over 20 years; there's no way a teen can have that long history, since they aren't even 20 years old! I'll talk about some of the things that a person can control later in this post.)
For those who don't know, until a person becomes 18, the three major credit reporting agencies (Transunion, Equifax, and Experian) don't maintain a credit file. (I used to wonder, when my son got "credit card applications" in the mail, how they got his name if he wasn't 18. As best as we can tell, when he went on an 8th grade school trip to Washington, D.C. we signed him up for a "frequent flier airline program." Some credit card companies just buy lists of names and addresses of potential customers from the airlines, not knowing a person's age or financial status.)
Some banks will allow students, even under age 18, to open checking accounts in conjunction with their parents, and they may have a debit card associated with those accounts, but having a debit card does NOT contribute to a person's credit score....Debit cards limit you to spending money that you already have in the bank (some have a small overdraft protection) but CREDIT is different, and kids can't get unsecured credit cards in their own name until they're 18. Parents may opt to add their kids as an authorized user of an existing credit card, but it's not the same.
In general terms, getting a first credit card and managing it responsibly can really open the door to additional benefits. Sometimes, the first credit card may be from a gas company or other local store, but they're limited in where you can use them. The "more widely accepted" credit card companies such as Visa and Mastercard often offer special "College Cards" (ie, Capital One) or have arrangements with a local or nationwide bank (ie, Chase) so that if you have a savings or checking account with them, you can get a credit card, too. That's what I'd recommend.
From what I've seen, a typical first credit card may have a $500 monthly limit and a high interest rate if you carry over balances from month to month. To maximize the credit score, a person should use it regularly, but stay under 25% of the credit limit if possible, and pay it off in full each month. Truthfully, to stay under 25% of a $500 credit limit, you're talking monthly charges of less than $125, and that won't even buy a college textbook in some schools! (You can charge up to your limit, but it's not good for your credit score.) While you might try to apply for a second credit card at another bank, you also have to realize that more than two "credit applications" in a short period of time lowers your credit score, since it's taken as a signal that "you're needy and looking for more money." (I believe people are allowed 2 inquiries per quarter, aka. every 3 months, or it begins to reduce your credit score.)
If you're able to wait, you might show the first bank that you're able to pay off the card balance in a timely manner each month, then ask if they'll increase the credit limit on that exisiting card. (In my son's case, they raised his limit automatically to $750 after the first 3 months of payments.) If you do want to apply to another credit card company, and wait the 3 months, the credit reporting bureaus should show a good "track record" and it may make another bank more willing to issue a credit card with a higher limit than the first one. (We discovered that fact when we decided to have him get another credit card today. We thought he would have his original credit card A which now has a $750 limit, plus maybe get a new one B with a $750 limit....so he would have a $1500 total credit limit. That would allow him to charge $375 in a given month, to cover his books and fees, and still stay under 25% of his total credit available... Surprisingly, the guy at the bank who accepted my son's application said, "Oh, we can issue you a credit card with several thousand dollars credit limit if you like....you're also approved as a "Tier 2" customer, meaning you'd pay lower interest on balances you'd carry over from month to month. Our "Tier 1" customers pay the lowest, but it's rare for a teen to qualify even as "Tier 2."
Amazingly, at no point have they asked for our son's job history or personal income, although they do ask about household income. The bottom line is, it's not a good idea to use a credit card if you don't have the money to pay off whatever you're purchasing each month, BUT for items like textbooks and such, which have to be bought regardless, a parent can help build their child's credit score by charging them to his credit card instead of their own. (In our case, the address used for where to send the monthly credit card statement is our home, so we can see what other charges have been made, and make sure the bill gets paid on time! I'm not sure if Mr. ADHD would do it on his own, but at least for now, we're helping to ensure his credit history gets off to a good start.)
NOTE: www.annualcreditreport.com only gives free credit reports, but as of July 2011, the following two internet sites are considered legitimate places to get your credit score, according to the "Upgrade Your Life" producers at Yahoo.com:
www.quizzle.com and
www.creditsesame.com
(They're free, but may try to encourage you to obtain a mortgage.)
Bros recommends www.mint.com for financial management info. Other online tools such as www.moneysmartweek.org/ and www.fdic.gov/consumers/consumer/moneysmart/ and ReadyForZero.com and Learnvest.com may also be helpful.
Here's a good site to evaluate different credit card features and offers:
www.credit.com/best-credit-cards/?utm_source=Yahoo&utm_medium=content&utm_content=IB_5&utm_campaign=CC_company_keep_business