How to build good credit history
My sun is 18 will be starting university soon. I advised him to start building a credit history so that when he’ll need it (car loan or a mortgage in a few years) he’ll already have a good credit score, and that should save him a lot of money.
From what I understand I’ll probably have to co-sign with him on his CC?
Are there any more ways to establish good credit history other than CC? and which is better?
Any advice is appreciated.
Building credit history is like catch 22 – you need credit to build credit history, but you can’t get credit w/o credit history…
Since your sun is under 21 he won’t be able to get a credit card without you or anyone else older than 21 cosigning with him (this is a new federal regulation).
You can, of course cosign with him, but that’s up to you.
Another easy way to establish credit is with a local credit union. They will often offer pledge loans some times called “share secured loans.”
These loans usually do not require any credit or co-signers. He can open an account, say for $200, and they will freeze that money and give him a loan for the $200 they have on hold.
He will then make, say $10, payments for 24 months until the loan is paid in full. Then his account with $200 will be unfrozen. In essence he is borrowing against his own money but it is a great way to start building credit history… and to force him to save money. After paying on his pledge loan for 6 months to a year he may want to look into a low limit ($500) credit card and keep a low balance to pay on.
Make sure he’s NEVER late on a payment, and NEVER maxes out the card (Below 50% should be the highest point for him).
This is a great way to start out. I should mention that although he will have a credit score – typically he will be labeled as having thin credit until he has about 3-5 loans and has paid all on-time for about 2-5 years. A mix of personal (unsecured loans like credit cards) and secured (e.g auto loans) will also help building credit, because credit diversity count (BTW this is the only case that more is better).