Credit is now a necessary part of life; many would call it a necessary evil. But no matter how one views credit, there is no question that in order to get anywhere in life, one must have a credit history. Try walking into a car dealership with cash for the car. A special transaction involving the manager is necessary for you to pay cash. Getting a car financed is easier than plunking down the cash.
It is a sad commentary on where society is today, but the truth is that in some cases it is actually better to have poor credit than to have no credit at all. So how can the young person start gaining entries in his or her credit history without drowning in debt? There are a few sensible suggestions that can help build student credit and assure her or his future.
Let the student put utilities in his or her name. Paying one’s obligations in full and on time is a great way to build good credit. Many parents have students’ utility bills sent directly to them while the students are at college. This deprives young people of learning to budget, and of getting a foot in the door when it comes to credit. Let your student have the electric and phone bills placed in her or his name. This will show creditors a history of responsibility, and it will teach the student that in ‘the real world’ nearly everything costs money. All this without incurring debt.
Co-sign on a loan in the student’s name. No student is going to get a loan of any kind (except the credit card kind) without some sort of credit history. This is why a co-signer is needed. Parents should be extremely cautious about this tack. Is your son or daughter responsible? Will she or he pay back the loan? Or will you be stuck with it? If your student is likely to be accountable for the loan, co-signing on a small loan of between $3,000 and $8,000 can help build student credit. As long as the student makes all payments on time, his or her credit score will go up.
Student credit card. Students and credit cards seem like a bad idea. However, if the student properly uses the card, then it can be an easy way to build good credit. Building credit with a student credit card should be done by a series of small purchases with the card, ranging from $10 to $250, spaced out over a period of a few months. In this way, the student should be able to pay off the card. Make sure that he or she understands the importance of paying off one purchase before making another. As the student’s rating improves, he or she can bargain with the credit card company to lower the usually high interest rate that comes with a student credit card.
Get a job. Even a part time job while in school establishes a work history. Reputable lenders like to see that someone can hold down a job. When the student learns the value of work, and learns the importance of having money to budget for paying bills, she or he becomes more fiscally responsible.
Building credit is essential, and by keeping a few things in mind (and setting a good example!), you can make sure that your young student get started out right as she or he embarks on the next phase of the journey.