Starting an 18-year-old on the road to credit
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Dear Opening Credits,
When my wife and I got married, we went into debt. Together we owed approximately $30,000. It took us four years to pay it all off. Afterward we bought a home in Oakland, California. We set the cards aside and have lived 100 percent credit card free for the past 10 years. All we have had is our mortgage and we have always paid that on time, so our credit is pretty good. Now our son, who turned 18 in January, wants a credit card. We would like to provide him with this opportunity. How would we go about making this happen and be sure that he does not make the same mistakes we did in the past? -- Jerry
Have you shared how you overcame your financial problems with your son? If not, now is the time. You and your wife are great role models! He could certainly benefit from hearing how you ran up your credit cards, decided enough was enough, and -- with effort and commitment -- paid off a considerable sum in a few short years. While he will eventually have to learn the right and wrong way to charge on his own, your cautionary tale can make him realize how easy it is to build balances as well as how hard (yet worthwhile) it is to delete them and live debt-free.
It's nice that you want to help him get a credit card so he can start the borrowing process, but exercise caution. You can put yourselves at risk if you link your credit to his. Here are two ways he can get started, with some words of warning:
1. Add him to an active account. The first method is to let him jump onto an open account of yours as an authorized user. This way he'll have charging ability without legal liability. The positive payment history associated with the account will be listed on his credit report, so if you both treat it well, his credit rating will benefit. If he overcharges you can kick him off any time, which is great for you. This option may not work, however, because you haven't used your cards in a decade or so, and issuers tend to close inactive accounts.
2. Co-sign on a new credit card, making you joint owners. If your credit is as good as you think it is, it's more than likely that your name is enough to guarantee a new credit card. Either of you can be the primary account holder (meaning the bills will go to that person), but both can charge equally. As with the authorized user situation, the account will appear on his and your credit reports. What's different: The issuer maintains the right to pursue all owners if the debt goes delinquent. Nor can you get off the account or give him the boot if trouble arises. You're in it together until the full balance is cleared and you close the card.
Given these options, I still advise against connecting him to your rebuilt credit history. You worked hard to repay a large amount of debt and adding another person to the mix can spoil it all.
Instead, you should lead your son to an account that he owns independently. At the age of 18, he is technically an adult and can enter into a contract without you or your wife being directly involved.
The main caveat to heed with this method is that he'll have to have proof of income. A federal law called the Credit CARD Act restricts people under 21 from getting their own credit card, secured or unsecured, unless they can prove that they have sufficient funds to cover any debt. Therefore, if he doesn't have a job, his first step will be to make sure the paychecks are rolling in.
There are plenty of credit cards available for people who have not yet established a credit history. Many are secured by a cash deposit, and I think these are the best way to start out. The limits are typically low (so he can't get into too much debt right away) and fairly easy to qualify for since the issuer is protected from losing any money. If he doesn't pay his bill, they can just take the funds in the deposit account. Review the offers with him, and read over the terms carefully before applying.
Whichever method you three choose, forget the notion that your son won't make errors once he has that little piece of plastic with his name on it. He will. But when he does, hopefully he'll remember what you told him about your own experience -- and will apply the same dedication to rectifying mistakes.
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