Young people looking for a credit boost can still co-sign with their parents, even with the passage of the Credit CARD Act. In fact, if the young adult doesn’t have his own source of income, it might be his only choice.
Dear Opening Credits,
My mother and I were going toapply for a credit card together so it will help me with my credit score. Willthis method still work that way in 2010? Thank you. — Mary
Your succinct appeal for help with yourcredit score indicates one of two situations:
- You don’t have a credit score becauseyou haven’t yet borrowed and repaid money from a financial institution.
- You do have a score, but it’s low andneeds repair.
To cover both possibilities, I’ll giveyou my advice on what to do based on each scenario.
Situation No. 1: You have no score because youhaven’t had credit
Just starting out in the world ofcredit can be tough, but there are ways to get your foot in the door. Afterall, every current cardholder started somewhere.
Depending on your age, having yourmother pitch in may not be the best option for putting plastic in yourwallet — it could be the only way. As of February 2010, many of the new creditcard reform provisions stipulated in the Credit CARD Act have gone into effect. Thislaw overhauled the consumer credit system, and because of it, applicants under the age of 21 must either prove that they have the means to repay the balancesthey charge, or they must have an adult co-sign on the account.
If your mother has a positive creditrating and is willing to share it with you by co-signing on an account,fabulous. Both of you will need to provide financial and employment informationto complete the paperwork. If the application is approved, you’ll get a card inyour name, but the two of you will be equally liable for the account.Additionally, the activity — which includes your balance and payment pattern –will be reported on each of your credit reports. Use the card well, and you’llbuild a great credit history and credit score. Your mother’s credit file can evenbenefit from the positive account activity.
Even if you are over 21, a co-signer isa way to get approved for a credit card. As long as both parties follow therules of good credit management, all is well. However, problems erupt too oftenfor me to wholeheartedly endorse this arrangement. If you do go this route, youcan offset potential damage by writing up a “co-signer contract.” It shouldspecify how much each of you may charge and on what, who will pay the bill andhow you will communicate the account status.
Now, you won’t need a co-signer if youhave a job that pays well, but since you haven’t proven you’re a good credit riskyet, you’ll probably have to begin small. A good intro is a secured credit card.You put down a few hundred bucks as collateral and get a credit line close toyour deposit. They are relatively easy to get, because the bank assumes almostno risk.
Situation No. 2: You already have a credit score, but it needs help
Perhaps you’ve had a credit card orloan, but missed some payments here and there — or maybe you didn’t pay at all. Or perhaps you spentover your credit limit. Maybe you’ve got some old hospital bills that youcouldn’t pay at the time, and they ended up in a collection agency. Whateverhappened, you can turn it around. Here’s how:
- Deal with your debt. Ifyou have credit cards and owe more than 40 percent of your credit line,concentrate on paying it down. That said, if you’ve got old collection accountsthat will be removed from your credit report soon (seven years from thecharge-off date), you may choose to let them age off.
- Pay all credit accounts on time. Never, ever miss a payment. The sooner you establish asteady schedule, the better your score will be.
- Clear up any errors. Get copies of your credit report and use the dispute process if you see anythingthat’s not true and accurate.
- Help time mend damage. Theolder negative information becomes, the less impact it has on your creditscore. Expedite the healing process by charging regularly and being aresponsible cardholder now.
If you are in this situation, I wouldsuggest your mother avoid co-signing on a credit product for you. She mustprotect her good name, and hitching it to a sullied reputation is notadvisable.
As youcan see, Mary, building a great credit score isn’t hard — and it hasn’t changedmuch with recent legislation.
See related:Help for bad credit, A complete guide to the Credit CARD Act, Get the free credit report that is actually free, How to dispute credit report errors, CARD Act means big changes for those under the age of 21