loan duration

[Anonymous]

We have a 21 year old son in college and he has no credit yet.  We are buying a boat and decided to get the loan in his name to help him establish some credit.  The only loan he qualified for was 18.9% for 10 years!  If we get a HELOC (for 6%) and pay his loan off after a month or so, will it be favorable on his credit report? 

[Lel]

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@Anonymous wrote:

We have a 21 year old son in college and he has no credit yet.  We are buying a boat and decided to get the loan in his name to help him establish some credit.  The only loan he qualified for was 18.9% for 10 years!  If we get a HELOC (for 6%) and pay his loan off after a month or so, will it be favorable on his credit report? 

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Hi, and welcome to the forums.

There are easier ways to help your son build his credit history.  You could add him as an authorized user to one of your credit cards, and he will inherit that history from you.  Ideally, this would be a card that does report authorized users to all 3 credit major credit reporting agencies (Equifax, Transunion, and Experian).

At age 21, he can also apply for a credit card on his own.  He may not necessarily get a large credit limit, but it would be a start.

For a HELOC, he would have to be on the deed to the house in order to take out the loan.  There's a lot more steps involved, which can be hassle (all persons on the deed have to sign a note in front of a notary indicating that they all agree to the HELOC).  Also, be aware of the fact that many HELOC charge an early closing fee that may run as high as $500 if you close out the HELOC within a short period of time (such as 3 years).  I suppose you could just pay down the balance and leave it open, which would avoid the early termination fee.  But still, this would be more of a hassle than the credit card options.

[Anonymous]

I now understand that there are much easier ways for him to get credit.  Believe me, if I had known that a boat is a "luxury" item, and it would take an act of congress for him to get a loan, even with me as a cosigner with an 811 FICO score, we would have just bought it ourselves.  He isn't buying the boat, we are.  We just thought if the loan was in his name, it would help him establish some credit.  I am just asking now; if he has a 10 year loan and we pay it off early for him, would that be good for his score? 

[llecs]

To rephrase the question: Would a loan, that is about to be paid off and closed by the HELOC, help your son's credit when he has no credit? I can't speak to what lenders would look at and don't know if it would be looked favorably or unfavorably by lenders, but per his FICO score, it won't help. In fact, I'd argue, it would hurt in the short and immediate-term. It will help his length of history, only for up to 10 yrs, because that's how long it would report if being paid off soon. In the short-term and immediate term, it would hurt because of the new credit and inquiry. Plus, FICO will only issue a score if, assuming he has no other accounts, this remains open and that takes 6 months. Once it is paid off, then it would be marked as closed and he loses the score assuming he doesn't get any credit between now and in the immediate future. What Lel is probably driving at is if he had a CC instead of a loan, even if a small limit or secured, then the high APR won't be at issue and a CC can remain open indefinitely. Plus CCs are scored much, much better than a loan. Loans really don't help your mix, but CCs sure do.

[RobertEG]

He needs to first establish his own credit.

Credit scores are based on individual credit performance, not on that of Mom and Dad.

I admire your dedication to your son, but sham attempts to establish a credit score with no credit history or obligation, are not what I would remotely consider as comparable to my years of establishing my own history, and score, on my own merits.  That is what FICO is all about.

Having a son in college, with no income, and no credit history, qualify for the purchase of a high principal boat loan is just above my social class.