Establishing Credit (or not)

[RetireAge50]

My kids are in college and soon enough will start making money. Should I advise them to get credit cards (and pay them off monthly) or should they never establish any credit?

They will be getting their degree without any debt involved so neither will have a credit score.

 

[rodi]

I have a coworker who was credit averse... Paid cash for everything - including his graduate degree and his fixer house. It turned into a huge deal when work required him to go to our factory in Taiwan - he needed a corporate AMEX card to purchase the tickets and AMEX refused to issue it.

Also - very hard to buy a house with no credit record - unless you pay cash.

If your kids are disciplined - the best way to establish and maintain a good credit record is to use credit (even slightly) and pay it off in full each month. Put one of their bills (internet, phone bill, gas & electric) on autopay to a credit card, and pay it off when the credit card bill comes.

 

[Walt34]

Agreed with rodi. A couple of guys I worked with had a very hard time buying homes because they had no established credit. And an apartment manager flat out told me that it was my credit rating that got me into an apartment.

At the time it was one Sears credit card that I used about three/four times a year. But apparently that was enough.

 

[Animorph]

DS will try buying a house in about a year. He has one credit card, but I loaned him the money for his car. I'm sure he has a credit rating, but probably not much on it. We'll see when the time comes if it is enough or we'll have to help out again.

 

[bssc]

Your credit score will also impact your insurance rates. The better the score, the lower the rates are.

And, as noted above, you need it for a house, car, rental, downpayments on utilities and so on.

 

[calmloki]

Joining the chorus. As a thrifty person I not only didn't have cards but also refused to have a proper checking account - $10/month! Crazy! Instead I had some account I could write 3 checks/month on and paid cash for the other bills.

Flew to a college reunion and couldn't rent a car, even offering $800 cash as security. I've since seen the light, even though I believe credit cards to be a massive evil in our society that adds a tariff but contributes almost nothing of value. Now I pay for all I can with cards, paying the bills in full each month, and rake in several thousands each year through card company signing bonus offers and cash back rebates. I am, proudly, what the card companies call a "deadbeat". Have your kids get cards, but play the game to win.

 

[Rothman]

I agree, have them establish credit. With the understanding of monthly payoffs. I started with gas cards in my day as they had no income requirement when I was a student.

 

[Sue J]

Our son has no credit cards but he did have a car loan that he paid off after just a year. When he applied to rent an apartment they ran a credit check and his credit score was high, so no problem to get the apartment. I guess that one year of steady payments was all that was needed to get a high credit score.

He got the car loan without a credit score because Toyota had a recent college grad promotion and he had nice, steady income. Also his down payment was about 30%.

 

[bssc]

I am, proudly, what the card companies call a "deadbeat". Have your kids get cards, but play the game to win.

No, you are a transactor. Here is some more information on the definition.

Credit Bureaus Now Classify Consumers as Transactors or Revolvers | LowCards.com

As the article notes, transactors are lower risk. The one study online showed that 0% of the transactors defaulted. They are also profitable because the merchant is still paying the credit card company 3% to essentially buy their receivables (and not worry about collecting on balances or bounced checks). They also can make money off you selling your name (if you choose to) or selling you other add on products.