June 2016 // Real Estate & Home Builders Guide // 13M
HOW TO HELP YOUR CHILD
UNDERSTAND, BUILD CREDIT
By Ilyce Glink
and Samuel J. Tamkin
Tribune Content Agency
Q
: What is a good credit card for
a new graduate to build credit?
I know my child is eventually going
to want to rent an apartment, buy a
car and who knows? Maybe even buy
a home to live in someday. I’d like
him to start to build credit so he can
achieve that goal.
: There’s a lot of talk about
inancial wellness these days and
what is the best way to build inancial
well-being and building up savings to
buy a home some day in the future.
The vast majority of Americans don’t
have $400 in emergency savings, and
employers are so worried about their
employees’ debts that some are starting
to reinance their personal loans at a
lower cost so that their employees don’t
get trapped into a payday loan cycle that
could send them into bankruptcy.
We love when parents ask questions
about how to help their child be smarter
about money, because it opens the door
to conversations about their inances
(and yours) that you might otherwise
not had -- to the detriment of your
child’s inancial future.
There is no one right credit card
for young adults starting out. If your
child has no credit, the best way to
build a solid credit report is to add a
gas or department store card or to go to
the bank where you have a savings or
checking account and ask if there is a
secured credit card account program.
A bank will often allow you to
“secure” a credit card by depositing
a sum of cash into a savings account
that doesn’t get touched. You are then
issued a credit card against that sum.
For example, if you put $1,000 into a
secured credit card account, you’ll be
able to charge up to $1,000. The bank
takes no risk, because the $1,000 is
sitting there in case you don’t make the
payment. But it’s a real line of credit
and it counts when you’re building your
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credit report.
After about six months or so, you
may be able to convert the secured
credit card account into a regular credit
card or apply for a new one from the
same bank.
Credit is how the digital economy
works, so it’s important to get it right
from the beginning. If young adults
build it slowly and carefully, and then
pay off all the charges in full each
month, they will have a solid credit
history with a high credit score.
That, in turn, will allow them to rent
apartments, qualify for low-interest
car loans, and ultimately buy their own
primary, vacation and rental properties
down the line. And since the lending
industry has become rather strict in
looking at “ability to repay” loans, and
requires higher credit scores to qualify
for a mortgage, starting out on the right
credit path is important.
Be sure to check your child’s
credit history at AnnualCreditReport.
com, which is the only site that the
three major credit reporting agencies
-- Equifax, Experian and TransUnion
-- are required by law to support. That
will tell you whether there is anything
unusual going on with your child’s
social security number and if you have
to take steps to correct identity theft or
inaccurate information that found its
way into the ile.
Finally, your child needs to have
a good understanding of how much
it takes to live: groceries, housing,
entertainment, student loan payments
and other expenses. With a bit of
knowledge, your child can try to save
money on a monthly basis, put that
money in a separate account and save
for a down payment on a home.
Good luck.