Although banks and universities both promote credit cards for college students, but still many students face a catch-22 when applying for their first card. This is mainly due to insufficient credit history. As most of the students are getting their credit cards for the first time, they don’t have a credit history and thus face, the dreaded credit catch-22.
If you want your child to get a credit card, then here is a list of five strategies for getting them to go towards the path to good credit.
Car Loans
Most of the teenagers drive their own cars and it’s the parents who buy it for them. The parents can help their children build a credit history by involving them in the paperwork, too. They can get their kids to co-sign for their car loan. Once their name is on the contract, they will begin to receive credit for timely car payments.
Your Own Cards
If you trust your child’s financial management skills, then you can add them to your own credit card accounts. This will help in building their credit history as any credit transactions associated with your credit cards will then influence your child’s credit score.
Bank Cards
If you are in a good financial state, then it is better to start a checking or savings account for your child while they are in their early to mid teens. Ensure that the accounts maintain a positive balance. This can be very beneficial because by the time your child is ready to head off to college, they will already have a positive history with their bank. Thus banks will more likely to issue your child credit cards, as the good credit history will already be there.
Retail Cards
Another good way to build a credit history is by getting a credit card from a department store. Try to choose a store that your child will shop at often, but not one where you think they might be tempted to spend beyond their means. It is important to teach your child that in order to build a good credit history, he must spend a little amount each month and clear off the balance at the end of the month. If he fails to clear the balance each month, it may lead to bad credit history.
Secured Cards
Secured credit cards are a good option for those who want to build up their credit. The cardholder makes a deposit into an account and the credit card is issued against that amount. In case the cardholder is unable to make their payments, the card issuer can take the money they’re owed out of that account. Since there is less risk factor involved with this kind of loan, banks and credit card companies more willingly issue secured cards to applicants who might not qualify for non-secured cards.
You can make your child’s future life easier with a little pre-planning and strategic thinking. Whichever card you choose for your child, make sure that you teach them the importance of clearing off the balance each month and thus creating a good history for themselves to benefit them in the future.
My son is 17 – he’ll be 18 next March. He is wanting to buy a car for $5000, so I took him to the bank where we both have accounts as well as my dad. Because the car was over 5 yeas old they wouldn’t do a car loan, but they would do a personal loan. My dad agreed to cosign for him since his credit is great (FICO scores in the 800′s) and mine is meager.
After jumping through all of their hoops and hurdles, they said that the loan was conditionally approved — two days later… well the loan would be approved only if my son is NOT on it! The bank manager even implied the financial planner made a mistake in talking to us since my son is a minor. (They were even going to charge us a 13.9% interest rate — for a 4 year loan so that the payments would be $138/month.)
My son works part time for a local hardware store and makes about $400-$600/month and can definately make the payments.
I’m flabbergasted that a bank would turn this down with a cosigner that has excellent credit!
So, where do I find a bank that will approve this loan?