Credit from nothing

Guurn

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Since most of us are far past this point in our lives this might not be the best place for this but here goes.

My youngest son hates debt, he always has. The idea of owing anybody anything drives him nuts. Unfortunately for him this isn't always possible without great sacrifice. He's 25 and never had any sort of credit card, never taken out any loan and when we looked up his credit score he has none. He needs credit and will need it soon...most likely.

Is there a way to build solid credit fairly quickly? He has pretty good savings for someone uninterested in a career so far (a few grand). I was going to tell him to get a small credit card, charge something every month and pay it off. Will he even be able to get that? He needs a car so i thought maybe it might be smart to use 2k as a down payment and take out a loan (if possible?) for 5k or so and pay it off over 2 years. He has the cash to purchase one outright. There is no way he would ever entertain much more of a loan. Is there a smarter approach? He has told me that he knows some day he will want a house and maybe schooling. His schooling will be covered somewhat but again, I'm not sure he would accept help paying. He just isn't that kind of person. This is his idea, building credit, so it isn't something I'm forcing on him. Like i could.
 

fred sanford

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Obviously using a credit card and not paying the entire balance off each month helps get the ball rolling. But I don't think there is any way to quickly get a good score. Starting off with something small will definitely give him a score but length of time that accounts are open is taken into consideration for credit scores so while he may be able to get a decent score at first by not having any bad marks, he won't have an outstanding score because he's just getting started.

In my case when I was younger I just had two lower limit credit cards and I paid the balance off in full every month. My credit limit never went up and my score was okay. As soon as I started not paying the full balance every month I suddenly got offers for increase credit limits.
 

sleevedraw

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Since most of us are far past this point in our lives this might not be the best place for this but here goes.

My youngest son hates debt, he always has. The idea of owing anybody anything drives him nuts. Unfortunately for him this isn't always possible without great sacrifice. He's 25 and never had any sort of credit card, never taken out any loan and when we looked up his credit score he has none. He needs credit and will need it soon...most likely.

Is there a way to build solid credit fairly quickly? He has pretty good savings for someone uninterested in a career so far (a few grand). I was going to tell him to get a small credit card, charge something every month and pay it off. Will he even be able to get that? He needs a car so i thought maybe it might be smart to use 2k as a down payment and take out a loan (if possible?) for 5k or so and pay it off over 2 years. He has the cash to purchase one outright. There is no way he would ever entertain much more of a loan. Is there a smarter approach? He has told me that he knows some day he will want a house and maybe schooling. His schooling will be covered somewhat but again, I'm not sure he would accept help paying. He just isn't that kind of person. This is his idea, building credit, so it isn't something I'm forcing on him. Like i could.

Cosign with him on an auto loan at a credit union, or have him sign up for a secured card like the Discover It Secured. If his concern is that he won't have self control, using a secured card might make him feel a bit more confident, because he is in effect "buying" the ability to have credit (and loses the deposit if he doesn't pay). It Secured also has no AF and still allows some generation of cashback, unlike a lot of "new credit" cards.
 

Guurn

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I'll look into that. Yeah, I'm be more surprised if he consistently uses it to build credit than worrying about him over using it.
 

Guurn

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Obviously using a credit card and not paying the entire balance off each month helps get the ball rolling. But I don't think there is any way to quickly get a good score. Starting off with something small will definitely give him a score but length of time that accounts are open is taken into consideration for credit scores so while he may be able to get a decent score at first by not having any bad marks, he won't have an outstanding score because he's just getting started.

In my case when I was younger I just had two lower limit credit cards and I paid the balance off in full every month. My credit limit never went up and my score was okay. As soon as I started not paying the full balance every month I suddenly got offers for increase credit limits.
That's interesting. I find that they increase mine when i use it a lot and consistently pay it off. I've got a 300$ limit cc that I've had for decades. Recently I checked on my credit with a financial woman and she claimed that having one that long even though it was small was a major favor in good credit. I didn't know if she was full of shit or not. Not like I'm changing anything much now.
 

sleevedraw

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As long as the card stays open, it will positively contribute to his history. Most CC issuers will keep a card open as long as one purchase is made every year. Discover is more permissive, and they usually say 1 purchase in 18 months.

The age of the oldest account isn't a direct scoring factor, but it does act as a scorecard segmenter (it sets the minimum/maximum available score and determines the weight of the values that are directly used to calculate the score), and it helps by increasing the average age of open accounts (which is a direct score factor).
 
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fred sanford

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That's interesting. I find that they increase mine when i use it a lot and consistently pay it off. I've got a 300$ limit cc that I've had for decades. Recently I checked on my credit with a financial woman and she claimed that having one that long even though it was small was a major favor in good credit. I didn't know if she was full of shit or not. Not like I'm changing anything much now.
"When I was younger" was the late 90s :)
Things may be a bit different these days with regards to paying in full or not
 

Borzak

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I'm sure this is not a sure fire thing. My parents had a credit card I used for a long time when I was younger. Would go out of state driving at 15. Would use the credit card if I needed it. Along the way I took over and paid on it and somehow they transferred it over to my name. No idea how it happened. I'm 49 and on my credit report I have a 40 year history from that one card which is apparently when it was opened.
 
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Comrade Araysar

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Cosign with him on an auto loan at a credit union, or have him sign up for a secured card like the Discover It Secured. If his concern is that he won't have self control, using a secured card might make him feel a bit more confident, because he is in effect "buying" the ability to have credit (and loses the deposit if he doesn't pay). It Secured also has no AF and still allows some generation of cashback, unlike a lot of "new credit" cards.

There is also something called "credit builder loans" but they are for rebuilding bad credit, and you do pay fees and interest. The way it works is you take out a loan, but the bank still holds the money. You pay the loan over time and bank reports credit score to the 3 agencies. He will probably do better with a simple credit card and maybe a financed auto loan, but still worth keeping in mind.



That's interesting. I find that they increase mine when i use it a lot and consistently pay it off. I've got a 300$ limit cc that I've had for decades. Recently I checked on my credit with a financial woman and she claimed that having one that long even though it was small was a major favor in good credit. I didn't know if she was full of shit or not. Not like I'm changing anything much now.

It increases the average ave of your credit history which is good. I wouldnt say it a major factor, probably somewhere in the middle.
 
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dizzie

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Getting a solid credit history takes time. You can read all you want about credit utilization rates and whatever else but it really boils down to not missing payments over a set period. There really isn't any other way, even with 1 card or a loan and no missed payments over 2-3 years your score will be pretty decent. There's really no shortcuts to it these days and you can't magically improve it except for regular payments over time.

You used to be able to manipulate it much more by doing various things, but not now. Whatever you read anywhere about improving it or speeding it up will be almost certainly be bullshit.

I'm also speaking from a UK perspective so things might be slightly different in the US.
 
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Khane

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If by slightly different you mean massively different then yes.

Credit and debt is viewed wildly differently in the United States than anywhere else on earth. All that stuff you're calling bullshit is very much not bullshit as far as credit ratings go here.
 
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Sanrith Descartes

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Times have changed. Credit score used to me some super secret thing. Not anymore. Just hit a credit site and look at the score formula. Somethings are quick (never, ever be late on a payment), some things take years (length of oldest account). It shouldn't be hard to break over 700 with a single card and making payments each month. Debt ratio is a big factor. Don't leave debt on the card each month. Pay it off but make sure to use it each month. Usage will help convince the bank to increase the max limit which in turn increases your ratio which in turn increases your score.

Also open a bank account with a bank that is also a big credit card issuer. Get their card (it tends to be easier). Need Wallet has a nice breakdown of cards and min credit scores required to get them.

Ps... Restating it for impact. NEVER be late or miss a payment. Its a multi-year kiss of death.
 

Furry

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This is his idea, building credit, so it isn't something I'm forcing on him. Like i could.

I was the same way, so I assume he uses a debit card for everything? Debt is very bad, but in this world having a credit score is very useful. He should get a credit card and use it like a debit card. It changes almost nothing and you'll get money for free from the credit company by maintaining the exact same processes. I just picked one that works with my bank so I have my bank account and credit card sync'd, and set it to pay off the full amount automatically every month.

I never once have paid a penny to the credit companies, and I get points from them that lets me get free shit. Closing the doors that credit opens makes no sense, when they offer you money for frree. Credit is your friend as long as you are responsible enough not to get in debt you aren't ready for. I made it to my mid 30s with no credit score, and now I'm sitting at 800+ a few years later, and they've slowly raised my limit from 2000$ to an amount that is absurd to me. If you are a ghost it doesn't take long for them to open the trap door wide, up to the user not to fall in.
 

Guurn

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I was the same way, so I assume he uses a debit card for everything? Debt is very bad, but in this world having a credit score is very useful. He should get a credit card and use it like a debit card. It changes almost nothing and you'll get money for free from the credit company by maintaining the exact same processes. I just picked one that works with my bank so I have my bank account and credit card sync'd, and set it to pay off the full amount automatically every month.

I never once have paid a penny to the credit companies, and I get points from them that lets me get free shit. Closing the doors that credit opens makes no sense, when they offer you money for frree. Credit is your friend as long as you are responsible enough not to get in debt you aren't ready for. I made it to my mid 30s with no credit score, and now I'm sitting at 800+ a few years later, and they've slowly raised my limit from 2000$ to an amount that is absurd to me. If you are a ghost it doesn't take long for them to open the trap door wide, up to the user not to fall in.
I didn't know about that option. He would love it. Thanks.
 

Furry

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I didn't know about that option. He would love it. Thanks.

I use chase to bank and have the amazon visa. Same log in shows the credit card and bank account, just gotta click between them. I'm sure all major banks offer something similar with their credit cards, but I'm not familiar with them. The ease of it was a primary concern for me.
 

Punko

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Times have changed. Credit score used to me some super secret thing. Not anymore. Just hit a credit site and look at the score formula. Somethings are quick (never, ever be late on a payment), some things take years (length of oldest account). It shouldn't be hard to break over 700 with a single card and making payments each month. Debt ratio is a big factor. Don't leave debt on the card each month. Pay it off but make sure to use it each month. Usage will help convince the bank to increase the max limit which in turn increases your ratio which in turn increases your score.

Also open a bank account with a bank that is also a big credit card issuer. Get their card (it tends to be easier). Need Wallet has a nice breakdown of cards and min credit scores required to get them.

Ps... Restating it for impact. NEVER be late or miss a payment. Its a multi-year kiss of death.

So in this very capitalist system, there is no way to use money in order for quick gains?

As in paying a loan back faster then scheduled or so?
 

Captain Suave

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He should get a credit card and use it like a debit card.

I didn't know about that option. He would love it. Thanks.

Yup. I'm 40, never carried a card balance in my life, never had a car payment. Take the credit card perks and run off into the sunset. Whenever I needed a higher limit I just called the up the provider and asked for a raise, which they granted every time. By the time I wanted to take out a mortgage my score was 800+.
 

fris

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lost of good advice here

I like using Mint to review all my accounts and ensure everything's getting paid. Every 2 weeks on pay day, I pay off ever credit card. Every utility goes to 1 card. Every credit card is setup so it will auto pay the min every month, just in case I do forget something somehow. My 'emergency' savings accounts are w/ separate online banks so it's not instant. having all my cash savings at the same bank as my main checking resulted in me never really saving.

I also suggest Credit Karma just to see how your credit is doing.

Like others said, never miss a payment. negative things on your credit will fubar you for YEARS.
 

AladainAF

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The best, and worst thing in my life financially was geting a credit card in 1995 when I was financially irresponsible. It had a $25,000 limit straight outta high school. Ooooh lawd.

However, I did eventually get it paid down, and to this day, I still have it, and this card by itself skews my average credit length number massively. Since your kid doesn't have this problem and is already responsible, he really should get a credit card, simply having it and using it and paying it off in full every month won't grow credit quite as much as carrying over a smallish balance, but it will at least start establishing credit age.

Teach him the virtues of "good" debt vs. "bad" debt. I'm of the mindset that credit card debt is actually "good" debt, so long as it's paid for every month completely and you're getting some kind of reward for using it. Get those reward miles, or points or whatever and exploit that shit. Pick one card for it and put EVERYTHING on it. This year alone I've got about $930 worth of American Express statement credit that I simply need to apply, because I charge everything humanly possible to it, and pay it off every month. Don't deviate unless its a good debt.

Other Bad Debts: "Specialty" credit cards outside your primary one. Such as a LL Bean Visa. Chevron/Exxon/Etc gas cards. Does not include specialty ones that give you leverage. Retail card purchases that don't give at least 1 year grace period on payoff.

Other Good Debts: Car Loan (Sub 2% interest, 5 Year or less), Mortgage (15 or 30 fixed rates only, ARM if you're 100% completely positive you'll be out by the fixed period), specialty credit cards that give you leverage (eg: Helzberg Diamonds Card), retail card purchases that give 1 year grace period on payoff such as rooms to go, etc.

You get the idea.