Educating Your Young Adults Regarding Credit Score

When your kids turn 18, they will most likely be going out of your house and start their independent life. But before they completely leave you, give them one last advice by training them on how to start with a good credit score. It’s a very simple strategy if you know how to deal with credit.

Your kids maybe very excited to apply for a credit card for the first time. But companies can’t just give anyone a credit card because they don’t have a credit score. It’s not that they have a bad credit but credit card companies cannot verify if they could be trusted in paying their debt or not.

Before you complain, advice your kids to obtain a copy of their credit report. They are entitled for one credit report every year and they could be obtained through Experian, Equifax and Transunion. This credit report will inform them if they do have a credit score or not.

. Starting with a Credit Card

The best way to establish a credit is in obtaining a credit card. But since it’s difficult for those who don’t have any credit in obtaining one directly from the credit card provider, here are some options:

1. Obtain a secured credit card – If your kid has a savings account, the secured credit card is a good place to start. The bank can help your kid in obtaining a credit card with his or her savings account as collateral.

2. Store credit cards – There are a lot of establishments that don’t care about the credit history and will issue a store credit card anytime.

3. Purchase an appliance as an installment option – This is not really a credit card option but you can help your kid purchase a product they prefer and pay them off in installment.

Of course, you have to make sure that they pay for their debts on time with the right amount. Failure to do so will mean a bad start for their credit score.

. Bad Strategies in Establishing Credit

• Starting a loan just to establish a credit card – never push your kid to obtain a loan and paying them with the same money with a “small” interest. The interest is never small and it’s just too time-consuming that you kid will end up spending the money without paying the loan.

• Obtaining a used car for from “no credit” car dealer – these are very nice offers but if you don’t need a car, don’t go for this deal. No matter how affordable the car is, it’s still going to cost you and the car will just be resold cheaper.

. Establishing Good Credit through Car Loan

If you kid to need a car, here’s a strategy on how to establish a good credit.

1. Transact with a “no credit, bad credit” used car dealers in your area. This may be the only company that will provide you with the car even without any credit anyway.

2. Get the best car your kid would like but the most affordable possible. This will set up an easy payment scheme for your kids.

3. Pay the first monthly bill promptly. This will establish your credit and will receive a good grade since you are able to pay them correctly and on time.

4. Pay the full amount of the car after one month. Since the credit report has been establish, there is no need to stay in debt if you can pay your car in full. Since your car is very affordable, this should be no problem.

Just make sure your loan contract doesn’t have any prepayment penalties to have a better deal.