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Topics addressed on October 14, 2009:
Helping child in college establish credit
My college freshman daughter applied for a credit card, was declined, and then applied for a secured card and was also declined. How can I help her build credit? She obviously has no history, but I am concerned that the two denials are going to hurt her score. I am at a loss on how she can build her own credit.
Now is a great time for your daughter to begin building her credit, but she probably will need your help.
It is far better to establish credit before graduating from college than trying to do so after receiving your diploma. A credit history can be pivotal in qualifying for an apartment lease, being approved for a car loan, and in some instances getting a job.
Four years of solid credit history can give your daughter a stronger financial foundation to start life on her own when she leaves the university.
You don’t need to worry about the two declined applications. Credit reports do not show that an application was declined. An inquiry for the application will appear showing she has applied. However, it is not uncommon for a person to simply decide not to accept a credit card or loan. And, if she has no credit history, she has no score.
There are several things you might be able to do to help her get started.
Consider making her an authorized user on one of your existing credit card accounts. The account will then be reported in her credit history, which will get her started. An alternative is to add her as a joint account holder on an existing account.
As an authorized user she is not responsible for the debt, but can use the card to make charges. As a joint account holder, she will share full responsibility for the debt.
If she is like many students, she may need to rely on student loans for a portion of her education costs. You can help by cosigning on the loans or on a credit card account for which she has primary responsibility.
New federal legislation will soon take effect that will likely require you to cosign for your daughter in order for her to receive a credit card if she is not 21 years of age. The new law requires that anyone under 21 have a cosigner unless they can demonstrate independent means of repaying any credit that is extended or can prove that they have completed a certified financial literacy or financial education course.
If your name is on the accounts, you have some control. You should be aware of any charges she makes and make opportunities to talk to her about how to use credit responsibly.
Whatever choice you make, please be sure she has some responsibility for the account and a role in paying the bills. The goal is to fully prepare her to manage a budget and individual credit accounts when you are no longer engaged in her finances.
Once she has her name on an account, it is just a matter of always paying the bill on time. In the case of an installment loan, it should be repaid without any late payments over the term of the loan. With a credit card, it is vital to make all of the monthly payments on time and to keep the balance low.
If she does those things, her credit history will be a strong financial tool when she heads out on her own.
Thanks for asking.
- The "Ask Experian" team