Establishing credit

[Anonymous]

Hi,

My son is 23 and has no credit at all. What would you recommend doing for him to establish some type of positive credit? I have a CC and could add him as a user, but not sure if that would actually help his credit or mine... Unfortunately, he totaled his car this weekend and needs a new ride (he is fine) and I don't think he could get a loan for a new one - obviously a used one - with no credit. I'm hoping I'm wrong on that though? I really don't want to co-sign on a loan for him because I don't want it to affect my debt/income ratio at this time as I'm trying to purchase a home. 

Any help would be appreciated.

thanks,

Dan

[ChargedUp]

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@Anonymous wrote:

Hi,

My son is 23 and has no credit at all. What would you recommend doing for him to establish some type of positive credit? I have a CC and could add him as a user, but not sure if that would actually help his credit or mine... Unfortunately, he totaled his car this weekend and needs a new ride (he is fine) and I don't think he could get a loan for a new one - obviously a used one - with no credit. I'm hoping I'm wrong on that though? I really don't want to co-sign on a loan for him because I don't want it to affect my debt/income ratio at this time as I'm trying to purchase a home. 

Any help would be appreciated.

thanks,

Dan

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My very first credit line at 18 was an auto loan. I had 50% down and the interest rate was astronomical, but a local lender approved me with ZERO credit history. (I refinanced the loan a year later for half the interest.)  Even totalled, his car has salvage value and could be used as a down (or at least a partial down) on another used vehicle. One thing that most people seem to forget is that if this was a newer vehicle and he had purchased an extended warranty and the vehicle never entered the extended warranty period, he can get a refund on the cost of that warranty.

Adding your son as an authorized user will help create a credit history on his profile. What you do with this account will show on his reports, but he will be shown as AU vs. being individual responsible for the account.

[Kforce]

Yes -- add him as an AU (conditional on):
1 You have good credit.
2 The CC that you want to add him to reports to the Credit Bureaus.
3 You keep the utility low on the card.
4 It has a few years of history.
5 You keep/control of the spend on the AU-Card. (to not lower your scores)

If you have an adequate down payment so the loan company will have "real"
collateral, you should be able to get a car loan with less problems than an
unsecured CC.

It will take time for his credit to grow. There is no quick fix.

After he has the auto loan, you can have him get a secured CC, and in
a couple of years of history, paying on time and the mix of auto & CC,
he should be in good shape.

My daughter is AU on 2 of my CC's, has 2-years with a secured CC,
and has a 790 Fico. (1-CC, 2-AU, no real credit mix)

It just take time!!

[Anonymous]

My suggestion would be to have him join a credit union like DCU, Penfed or NFCU.  Credit Unions are one of the best resources exist for low interest credit.  The good news is he doesnt have any negative credit history to overcome so a couple of small credit cards and an installment loan will put him in great shape quickly.  I would encourage him to read and learn as much as he can about how to build a good credit history (they don't teach kids this stuff in highschool which is a shame) so he can fully take advantage of the clean history he has and not ding it up.  Capital One is a good source for secured cards, almost everyone starts out there. If he is a college student discover will probably give him a card also.

On the car, a credit union may be willing to give him a car loan without a co-signer if he has a down payment as long as he has income that is adequate.  For my kids I have made them authorized users on a couple of accounts so they can build a score without having to do anything (don't give them the cards) and then for my 18 year old we are doing a share secured loan for $1,000 that is secured against her savings and will put her in good shape for credit mix and start her average age of accounts.  Ideally you get them started early so by the time they are ready for credit in their mid 20's they have enough to get good interest rates, I hate the idea of my kids having to pay high interest for anything.

[Anonymous]

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@Anonymous wrote:

Hi,

My son is 23 and has no credit at all. What would you recommend doing for him to establish some type of positive credit? I have a CC and could add him as a user, but not sure if that would actually help his credit or mine... Unfortunately, he totaled his car this weekend and needs a new ride (he is fine) and I don't think he could get a loan for a new one - obviously a used one - with no credit. I'm hoping I'm wrong on that though? I really don't want to co-sign on a loan for him because I don't want it to affect my debt/income ratio at this time as I'm trying to purchase a home. 

Any help would be appreciated.

thanks,

Dan

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Adding him as an AU will definitely help, but my concern is that it will not report quickly enough if he needs the new car right away.  I would try to pick a card with a quickly approaching statement date so it reports sooner.

As for the secured CC- once he has your card reporting as AU and possibly a car loan as well, I think he will be able to get a Cap1 or Discover unsecured. Sometimes you may need to be patient. When I had no cards and wasn't seeking credit, I can't tell you how many offers for a secured or an AF card I threw in the garbage before Cap1 sent me an unsecured no AF Plat offer. 

[Gollum]

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@Anonymous wrote:

Hi,

My son is 23 and has no credit at all. What would you recommend doing for him to establish some type of positive credit? I have a CC and could add him as a user, but not sure if that would actually help his credit or mine... Unfortunately, he totaled his car this weekend and needs a new ride (he is fine) and I don't think he could get a loan for a new one - obviously a used one - with no credit. I'm hoping I'm wrong on that though? I really don't want to co-sign on a loan for him because I don't want it to affect my debt/income ratio at this time as I'm trying to purchase a home. 

Any help would be appreciated.

thanks,

Dan

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It seems to me as though your son should be thinking used car loan short-term, and credit card long-term.

People with no credit can almost always buy a car from some used car dealer because the dealer can jack up the price and/or interest rate and/or length of the loan and/or frequency of payments to cover the dealer's cost of doing business, which will inevitably involve some repossession expenses (not necessarily involving your son's car).  The dealer can also install a device that the dealer can use to turn off the engine if a payment has not been made.  The dealer can also repossess the car for non-payment, then sell that same car to someone else, restarting the process with a different buyer.

A used car loan is an excellent way to establish credit, as long as the payments are made.  Eventually, after an established record of making the car payments on time, your son will be able to obtain a credit card.  At that time, I advise your son to exercise even more patience, though: refinance the used car loan first (to probably cut the interest payment at least in half), then take his time to eventually obtain a credit card.

The immediate goal for your son should be to buy a used car that is in the sweet spot (reliable, without being too expensive to keep making the payments), then buckle down and keep making the payments no matter what until he can refinance his initial used car loan by taking out a different used car loan with a credit union or bank that pays off his initial car loan, then saddles him with more car payments but at a more normal (lower) interest rate.  Your son's initial used car loan is going to have a high interest rate, but he can use the kbb.com used car values to keep from getting totally taken advantage of regarding the sales price of the car.  Tell your son to split the used car purchase into three steps:

1.) Negotiate the used car price first.

2.) Negotiate the trade-in (if any) second.

3.) Negotiate the terms of the loan third.

After some indeterminate period of time (I'm going to arbitrarily say one year of on-time payments, just to try to strike a reasonable balance between optimism and pessimism) your son will have good enough credit so that he could get a credit card or a used car loan with a better/normal interest rate.  I suggest he go for the better/normal interest rate used car loan first.

[medicgrrl]

My 22 year old started out with a student credit card from his credit union.   After that, his dad cosigned on a small personal loan so he could buy a cheap used car.  His next card was a Firestone card for tires, etc.  After that, he went back to his credit union and took out a car loan on his own and now has a second credit card.  I've been showing him what happens to his credit score when he lets to high of a balance report.  

I suggest that he goes to his bank where he already has an established relationship and talking to them about options.

[newhis]

For AUs, Amex will report the open date as the date you add the AU and not the same date as the primary cardholder. Almost all other lenders will report open date the same as primary, even issue a card with same number as primary.

If you want to add 15 year old child, Amex is a good option, it will start at that date. If you want to boost an older child their score/credit it is better to use other old card.

[jdxprs1]

I was able to help my daughter build credit with my credit union. They had a special program for auto loans for young people with no credit files. The rate was 4.5%