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Helping my nephew to BUILD his credit. Seeking collective advise/wisdom.

AboveAverage
Regular Contributor

Helping my nephew to BUILD his credit. Seeking collective advise/wisdom.

Hey all,

 

It's been awhile since I've had to do this myself, but I want my nephew to start getting big limits early and not trudge along like I had to in my rebuild.

 

He is 27 (if that matters) and has never had credit, therefore no negs. His income is ~$30k per year. He tried getting Macys, JCPenny's and Exxon. All of them gave him denials for lack of credit. I told him, ok, no big deal. He has had a checking account and direct deposit with Bank of America. He's been putting x amount in a ING savings account until he accumulated $1000. He has since withdrawn that amount and under my direction, applied for BOA's secured card, much like I did over 2 years ago. It takes a few days for them to approve, but I can't see how they will deny him. So he'll have a card that will report to the bureaus. He has been given the speech about paying the card in full and not doing anything stupid like buying stuff he can't afford.

 

What I want is a strategy to get him decent-sized limits right off the gate and to have him with a nice score after one year. I did not tell him that BOA unsecured my card after 9 months, because I'm not sure they will do the same for him (though we'll try for sure). My questions are this:

 

1) How soon after the secured card should he apply for other credit card and/or store cards? I was thinking minimum 6 months. Which ones should he gun for? Should he get a second secured card, or should he just augment his $1000 with another $1000. The kid lives with his mom, rent free so he definitely has funds to play with.

 

2) I don't want to get him involved in any loan products right now, but should he get a secured loan just so he has that mix? The CUs I had looked at in my area only report to 1-2 out of the three, so I personally got a bad auto loan, which by next year will hopefully be paid off. I'm trying to see if there is anything else I can do to make him credit worthy after a year's time.

 

Basically I just want him to get on the right road early. Didn't want him wasting his time with First Premier-like products like I did when I started my rebuild. I am well aware it takes time, and he has that, but am wondering if I'm forgeting anything while putting him on the right road to high FICOness. The only thing I advised him was that anything that reports to a CR gets paid immediately before the due date and never late. That much he has. But anything additional would be most appreciated. I know a number of us like a good test case. I offer my nephew as such. LOL.

 

Thanks.

Message 1 of 10
9 REPLIES 9
Wolf3
Senior Contributor

Re: Helping my nephew to BUILD his credit. Seeking collective advise/wisdom.

 


@AboveAverage wrote:

Hey all,

 

It's been awhile since I've had to do this myself, but I want my nephew to start getting big limits early and not trudge along like I had to in my rebuild.

 

He is 27 (if that matters) and has never had credit, therefore no negs. His income is ~$30k per year. He tried getting Macys, JCPenny's and Exxon. All of them gave him denials for lack of credit. I told him, ok, no big deal. He has had a checking account and direct deposit with Bank of America. He's been putting x amount in a ING savings account until he accumulated $1000. He has since withdrawn that amount and under my direction, applied for BOA's secured card, much like I did over 2 years ago. It takes a few days for them to approve, but I can't see how they will deny him. So he'll have a card that will report to the bureaus. He has been given the speech about paying the card in full and not doing anything stupid like buying stuff he can't afford.

 

What I want is a strategy to get him decent-sized limits right off the gate and to have him with a nice score after one year. I did not tell him that BOA unsecured my card after 9 months, because I'm not sure they will do the same for him (though we'll try for sure). My questions are this:

 

1) How soon after the secured card should he apply for other credit card and/or store cards? I was thinking minimum 6 months. Which ones should he gun for? Should he get a second secured card, or should he just augment his $1000 with another $1000. The kid lives with his mom, rent free so he definitely has funds to play with.

 

2) I don't want to get him involved in any loan products right now, but should he get a secured loan just so he has that mix? The CUs I had looked at in my area only report to 1-2 out of the three, so I personally got a bad auto loan, which by next year will hopefully be paid off. I'm trying to see if there is anything else I can do to make him credit worthy after a year's time.

 

Basically I just want him to get on the right road early. Didn't want him wasting his time with First Premier-like products like I did when I started my rebuild. I am well aware it takes time, and he has that, but am wondering if I'm forgeting anything while putting him on the right road to high FICOness. The only thing I advised him was that anything that reports to a CR gets paid immediately before the due date and never late. That much he has. But anything additional would be most appreciated. I know a number of us like a good test case. I offer my nephew as such. LOL.

 

Thanks.


Good plan, I would suggest taking the BofA to $2000 at six months.    Especially since big limits are the important to you.   Wait until 9 to 12 to apply for next cards.  No reason to apply for sub prime products, just a few good major cards.    If he is a regular customer of a store with credit card, that is also a good option.

 

Message 2 of 10
AboveAverage
Regular Contributor

Re: Helping my nephew to BUILD his credit. Seeking collective advise/wisdom.


@Wolf3 wrote:

 

Good plan, I would suggest taking the BofA to $2000 at six months.    Especially since big limits are the important to you.   Wait until 9 to 12 to apply for next cards.  No reason to apply for sub prime products, just a few good major cards.    If he is a regular customer of a store with credit card, that is also a good option.

 


Sounds good, but when should he apply for the store ones? Should that be in the 9 to 12 month range as well?

 

I will advise him to augment the secured when he's able to. Getting him at the big dog limits early will definitely be beneficial.

Message 3 of 10
daboss28
Frequent Contributor

Re: Helping my nephew to BUILD his credit. Seeking collective advise/wisdom.

I don't know his shopping habits but to reiterate what wolf was saying earlier it's a good idea to deal with store cards you already shop at.  This way you don't have to change your habits you simply use the plastic as a front for cash so they know your a continous shopper as opposed to cash which leaves no record.  Also by only stick with stores you shop at you don't have to waste money at places just to keep your account active.  Just make sure he always PIF every month.

 

Target and walmart report to all three credit bureaus and timely but if he's not into the bargain shopping that might not be the best plan for him.  It all depends on his habits.

 

From experience during my rebuild the secured installment helps for a number of reason, it adds a tradeline, keep it current it's a good TL, you can put up as much as you want like the account from which the loan will draw on and freeze.  When you freeze this amount everytime you make a payment the amount of the payment becomes available to you... unless it's secured by a CD which i don't suggest i would go with savings secured if his CU has that option. 

 

It sucks that the CU's only report to 2 bureaus in your area are you sure you checked with all the available cu's in your area?

EQ 715 8-4-12 // Walmart TU 720 8-11-12 // TU 04 744 (cc pull) 8-23-12 EXP (cc pull) 707 8-23-12
~~In my wallet: Chase Freedom, Discover More , US Bank, Walmart Discover, CitiDividend Platinum Select , Target Red Card

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Message 4 of 10
RobertEG
Legendary Contributor

Re: Helping my nephew to BUILD his credit. Seeking collective advise/wisdom.

On first reading, securing CL increase on the single card would not be my main focus.  FICO does not directly score CL, only % util.

If he PIFs every month, then CL increase wont improve score. However, if he gets the urge to spend, then higher CL will protect his % util.

So that is the factor that I would consider in evaluating the importance of a CLI on existing credit.

So it is, in my opinion, how he uses his current credit that mandates the importance of CL.

The issue for building a solid history is, in my opinion, building a thicker credit file.....at least 2-3 revolving lines of credit.  He clearly now has a lean credit file.  Getting, and managing 2-3 revolving cards will build a thick credit file.

I would have him lay low for at least 6-9 months, build a credit history, and then thicken his credit file by securing another revolving line of credit.

 

Message 5 of 10
AboveAverage
Regular Contributor

Re: Helping my nephew to BUILD his credit. Seeking collective advise/wisdom.


@RobertEG wrote:

On first reading, securing CL increase on the single card would not be my main focus.  FICO does not directly score CL, only % util.

If he PIFs every month, then CL increase wont improve score. However, if he gets the urge to spend, then higher CL will protect his % util.

So that is the factor that I would consider in evaluating the importance of a CLI on existing credit.

So it is, in my opinion, how he uses his current credit that mandates the importance of CL.

The issue for building a solid history is, in my opinion, building a thicker credit file.....at least 2-3 revolving lines of credit.  He clearly now has a lean credit file.  Getting, and managing 2-3 revolving cards will build a thick credit file.

I would have him lay low for at least 6-9 months, build a credit history, and then thicken his credit file by securing another revolving line of credit.

 


Thanks for your suggestion. He plans on using the card to pay for stuff he needs now (bus pass to get to work and friends house, lunch at work, his cell phone bill, and whatever else)...he is trying to save up enough money to travel to Europe again and wants to do it on his own CC instead of calling his uncle [me!] to book the flights...that's really where the credit building stemmed from. I told him I would book his flight and hotel, but he needed to give me cash upfront so I didn't incur interest.

 

The trick will be where he can get the 2-3 cards and then which ones. Walmart I don't have experience with as in the beginning I was always denied, but Target started me off with $200. Then bumped me to $1k during the holidays to try to get me to shop. LOL. I don't want him to deal with crappy limits. I want him to start off strong. He can definitely wait 6-9 months, but then it's my hope he can get an unsecured card from a gas or retail outlet that will give him a $1k just because he'll have at least that much from BOA secured.

 

Message 6 of 10
AboveAverage
Regular Contributor

Re: Helping my nephew to BUILD his credit. Seeking collective advise/wisdom.


@daboss28 wrote:

 

It sucks that the CU's only report to 2 bureaus in your area are you sure you checked with all the available cu's in your area?


All of them, probably not. But the two that were local to us, yes. I could see if Pennfed has a secured installment product that reports to all three.

Message 7 of 10
RobertEG
Legendary Contributor

Re: Helping my nephew to BUILD his credit. Seeking collective advise/wisdom.

I am a bit confused.

 

He wants you to use your existing credit as securement of initial  booking of his European adventure, without first getting approval of his own, new CCs that will then permit him to thereafter cover final payment by way of his own future availble credit?   I think, at the very minimum, you are wise in asking for full payment of the obligated expenses in cash to you in advance, to protect yourself.

 

If he needs more credit to finance this adventure, it is very risky for him, not you, to make such a commitment.  That implies that he does not have sufficient liquid savings/funds to just pay it.  He wants to go into a credit hole on credit that does not even now exist? And build high balances and % util on anything that he is fortunate enough to secure in the interim?  I just dont see it.

It seems like your advice to him for credit building is very well-reasoned, and sound .  It does not seem to me that  his motive is the same. 

 

I, personally, would just say no to the whole scheme, and wait for him to first secure his own resources, and let his adventures be supported by him.

 

 

 

 

 

Message 8 of 10
AboveAverage
Regular Contributor

Re: Helping my nephew to BUILD his credit. Seeking collective advise/wisdom.


@RobertEG wrote:

I am a bit confused.

 

He wants you to use your existing credit as securement of initial  booking of his European adventure, without first getting approval of his own, new CCs that will then permit him to thereafter cover final payment by way of his own future availble credit?   I think, at the very minimum, you are wise in asking for full payment of the obligated expenses in cash to you in advance, to protect yourself.

 

If he needs more credit to finance this adventure, it is very risky for him, not you, to make such a commitment.  That implies that he does not have sufficient liquid savings/funds to just pay it.  He wants to go into a credit hole on credit that does not even now exist? And build high balances and % util on anything that he is fortunate enough to secure in the interim?  I just dont see it.

It seems like your advice to him for credit building is very well-reasoned, and sound .  It does not seem to me that  his motive is the same. 

 

I, personally, would just say no to the whole scheme, and wait for him to first secure his own resources, and let his adventures be supported by him.

 

 

 

 

 


I can definitely see the confusion and will attempt to clear it up.

 

A few months ago, earlier in the year, my nephew had wanted to embark on a trip to Barcelona. He had told me he was gonna find a cheap ticket and stay at hostels. I told him that hostels were not an ideal way to stay at a room as he would have to travel very light so that he didn't leave his belongings back at the hostel. There were hotels that probably could meet his budget. He planned to take his trip on the first week of July so we had to book his flight early. He did not have a credit card, so I told him the only way I would book it is if I got money upfront. We both decided that I would book it in April, since that was a three paycheck month and he would give me equal payments. At the time that was fine, because unbeknownst to him, I did have extra cash lying around so I got the trip and paid it off in full then collected his money throughout April. Because he was family, I got to act like a CA when payday came and even threatened grave harm if I did not get my money. LMAO. (It would have never came to that...I would have simply canceled the ticket and gotten a refund since I bought the travel insurance, which he also paid for...lol). April comes and goes and I'm fully paid on the ticket.

 

The next step was finding a hotel. The ticket was easy, but finding a hotel was proving to be work since I was not familiar with Barcelona. My nephew though had his own criteria (as well as his mother [my sister]). 1. Free continental breakfast. 2. Close to the Las Ramblas area or in it. 3. Under $1100 (US). So because I was having problems finding this stuff on my own, I invoked my Visa Signature concierge service (since it's free) and had them do all that work for me. A couple of days later they give me a list of hotels (a couple that I didn't even find in my own searches) and out of the ones that I didn't find, I google those to see if I can get an early booking discount based on the dates my nephew wanted. It was about 300-400 cheaper than the concierge gave me. I tell my nephew the price and he says book it and will do the 3 paycheck thing again. He pays of his debt prior to stepping on a plane.

 

It is from this experience that wants to get his own credit card so that he can do his own travel. My nephew lives at home with my sister, she charges him no rent, and he makes about $1700 a month net. He's had that job for 3 years. His biggest and probably only bill is his cell phone (he currently doesn't drive). He tried getting unsecured products but was denied. So I looked at his credit reports and found that he has no negatives. I explained to him that CCs are not what they used to be...that they got very tight on lending criteria and plus went into CCARD. His best bet was a secured credit card and that BOA should give him one because he has a checking account with direct deposit. So he's currently waiting for his $1000 that he has saved up while he was galavanting in Spain to leave his checking account. I then advised him that he should fund the account every $1000 until it can be unsecured AND that he should not do any trips until he can afford to do it with cash. Which will tell him that when he gets his money back from BOA and it becomes a unsecured product, he can do another European vacation. When I unsecured my card, I made sure I didn't have a balance so that I could threaten to close the card if I had to. Thankfully I didn't need to. LOL.

 

I am also going to have him wait a few months until he guns for Exxon and JcPennys. Macys I'm going to explain to him NOT to get as they became useless with the lack of a credit limit reporting. Kohls might be a better deal for him though.

 

Believe me, I would never want him to experience the pain I personally went through with credit. Just want him to do it the right way and if he's going to do it, at least get bigger limits than I did. Hope it makes sense.

Message 9 of 10
haulingthescoreup
Moderator Emerita

Re: Helping my nephew to BUILD his credit. Seeking collective advise/wisdom.

I'd definitely keep investigating credit unions. There might be some for which he is eligible (via work, college, etc.) that do report to all three. It would be pretty tough for him to get on now with PenFed, which typically wants to see a well-established history. Perhaps another of the big national-level ones might work. (Not sure if Alliant reports to all three; seems like there was an issue there for a while.)

 

At any rate, my suggestion would be to wait for the new BofA card to report for 6 months (in other words, wait 7 months or so), and in the meantime, set up a relationship with a CU that reports to all three. Do some sort of direct deposit into a share (savings) account at the CU during this time and then after six months, get a card. Be sure to find out first if the CU offers CC's, lol.

 

If all these "if's" work out, then wait another 6 months until the BofA card is 12 months old and the CU card is six months old, and then he should be in good shape to get a third card from a major bank. Then sit with 3 and let them cook for a year or two, and he'll be in great shape. Three open revolving accounts (i.e., CC's) seem to be a magic number with FICO scoring, with little or no initial score damage upon opening. After three, there's generally a score sag for a while.

 

As for a loan, either now or in six months, I'd suggest pulling the two myFICO score reports and looking at the negative reason codes. Unless one of them is "absence of an installment loan", or whatever the jargon is, I don't think that I'd get one just for the heck of it. Yes, installment does help mix, but if it's not listed in the top 3 or 4 negative factors, getting one probably won't do much, and it will just re-age his history all over again. Tracking the negative factors on FICO score reports can be very enlightening as to what the best next step is.

 

You might also check the Expanded High Achievers characteristics list stickied at the top of the "Understanding FICO Scoring" board. We've been collecting FICO reason codes from forums members' reports, and once you stagger through the thread, you can get a pretty good general idea of what it takes to shine in credit land. There's a lot to be said for "less is more." Smiley Wink

* Credit is a wonderful servant, but a terrible master. * Who's the boss --you or your credit?
FICO's: EQ 781 - TU 793 - EX 779 (from PSECU) - Done credit hunting; having fun with credit gardening. - EQ 590 on 5/14/2007
Message 10 of 10
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