What type of card would be best to start my son building credit

[Creditaddict]

I say at min. 3-5 credit cards, with atleast 1 being a store card. then maybe I would agree to sit back and wait until you need house, car etc.

[Anonymous]

Hi Lifeweaver,

First of all, I think it's wonderful that you are taking the initiative to make

sure your son gets off on the right foot credit-wise. If more parents were

like you, kids would learn the value of a dollar from the people who care

about them the most - their parents.

Secondly, if I were in your shoes and had a clean slate to start with, I would

start with $1,000 from your son's savings. I also am a big believer in credit unions,

but make sure your credit union reports to all 3 major bureaus on a monthly basis.

I would put $500 into a secured credit card and the other $500 into a "credit rebuilder

loan". Credit unions have different names for them - share secured loans, supersaver

loans, credit rebuilder loans, etc. But they all pretty much work the same. They place

the $500 in either a savings account or a CD, and your son takes out a loan for the same

amount and uses his funds as collateral. The money is "frozen" in the account, but as

each monthly payment is made (early or on time, of course!) an amount equal to the

monthly payment is released and made immediately available to him.

Payment terms are usually 1-3 years, depending on how much money is used for

collateral. Most loans of this type are a minimum of $500 and a maximum of $5,000,

and the interest paid is very low. Typically, the rate is 3% above a 12-month CD rate.

Example: if your credit union is offering 12-month CD's for 3.5%, the interest rate for

the credit rebuilder loan will be 6.5% for 12 months. In this case, monthly payments

would be approximately $45 to repay $500.

In other words, before your son borrows someone else's money, you should teach

him to take care of his own.

Splitting the $1,000 between a secured credit card and a credit rebuilder loan serves

multiple purposes:

-- Your son will establish two (2) tradelines in his name instead of just one

-- Having a revolving line of credit (secured cc) and an installment loan (credit rebuilder)

creates a nice mix of different credit, which accounts for 10% of a person's FICO score

-- With secured cc's you can increase the credit limit at your discretion, as opposed to

subjecting your son to credit line increases every 3-6 months that may or may not happen

-- Credit rebuilder loans establish credit, build savings and increase FICO scores all at

the same time. When the loan is repaid, just repeat the process to encourage the importance

of further saving.

Anyway, hopefully this will spark some ideas and perhaps a conversation with your local

credit union representative. And once again, Congratulations on taking the initiative to

starting your son on the right credit path. He's lucky to have you.

Enjoy the evening!

CanDo

"The right attitude is everything"

[KingAdrock]

I got my first card from Cap 1, when I had no credit history and no job. (I actually put $0 HHI. ) So you don't necessarily have to go secured. If you can't get an unsecured card, definitely try for the 99/500 BofA card.

[Anonymous]

I like "CanDoAttitude" idea... I going to keep that in mind for my kid

[Anonymous]

Well, when I mentioned about the Capital One, then American Express, then mortgage being easier, I was not suggesting to get a mortgage but yet, once that time came and his son wanted a mortgage thins would be easier. keep in mind, in a two year time frame which I was refering to for someone with no credit and trying to get credit, have 4 cc or trying to get 4 cc is a bad thing in the eyes of creditors. To much credit in to short of a time frame. That would then make his son a riskier consumer.

Unfortunatly, our credit system is a catch 22. What I mean by that is, damned if you do, damned if you don't system. We are told to go get credit, then we are told not to much. We are told to use the credit, then we are told don't use to much. Plus with two cc and two years of excellent payment history will do the job. remeber, when appling for a mortgage, the system is different from applying for cc. For a cc, your score/payment history is used. For a mortgage not only is your score/payment history used but your income for past two too three years also. Plus, even if ou have limited credit, mortgage companies will tell you to get a letter from your landlord explaining your payment history with them, plus they also consider and calculate other nonreported credit that you may have elsewhere. Now, in a sitaution as that, your under righting is done manually, and your interest rate will tend to be a point or so higher. So, three to four cc in a short time (1 to 2 years) is not good. Better sticking with one or two pay good and ask for crdit line increases. Create that relationship with then, stop appling at to many places. If you have 4 cc with each having a limit of about $300, then every time you apply elsewhere, crditors will use that as a land mark of how much credit to provide you with. That land mark may never pass $1000.

[Anonymous]

I like the comment you made about, not having to go secured cc. That is so true! I think everyone needs to know something very important about secured credit cards. If you seek to obtain a secure cc. and lets say the limit you deposit into that (savings acct ) as they call it, that can come back and bite you if that bank reports it as a SECURED CREDIT CARD!! When seeking out secured credit cards, you must ask that bank if they report to credit agencies as secured or as regular cc. 90% of banks that offer secured cc and secured loans claiming it will help your credit or to establish credit and then report to the credit agency as secured acct, are just getting you to put your money in their bank for their balance sheet. It will not help you if they report as secured on your credit reports.

The one bank that I know that offers secured credit cards and report as a normal cc and offers you balances from $300 to $5000 per card (allowed two only per customer$10,000 total) is Millenium Bank out of New Jersey. DO your due-diligence on these companies before hand. Do not lock up your money in their bank if YOU  will not benefit from it!!

[Anonymous]

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forthepeople wrote:

It will not help you if they report as secured on your credit reports.

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I'm sorry.  I don't mean to be hypercorrective, but this is not true at all.

First, the designation "secured" makes absolutely zero difference in FICO scoring.

Second, a lender who may see the designation "secured" during a manual review and doesn't understand that getting a secured card is a perfectly reasonable, and above all very wise way to establish one's credit, and therefore would hold it against you, is not a lender you want to do business with.

[Anonymous]

Correct, secured status credit card being reported as secured would not have an effect on your fico but if you have a secured cc that is not being reported as secured WILL help and have an effect on your credit score. Secured cc are good, I agree but not if they are being reported as secured.

[Anonymous]

Also, I was not refering to lenders (mortgage) and their views but to cc issuing companies. It does make a difference. I know seeral clients of mine with secured credit cards being reported as secured whom could not get an unsecured card. Once I sent them to Capital One and they used their establishing credit credit card, the issue was no more.

[Anonymous]

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forthepeople wrote:

Correct, secured status credit card being reported as secured would not have an effect on your fico but if you have a secured cc that is not being reported as secured WILL help and have an effect on your credit score. Secured cc are good, I agree but not if they are being reported as secured.

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Again, that's just not the case.  FICO completely ignores the "secured" designation.  A card that reports as secured is scored exactly the same as a card that does not.

Message Edited by cheddar on 04-11-2008 11:47 PM