Not a bad credit score - he appears to have none at all. He paid off his student loans early, bought a building lot and paid that off early. Hates debt, but he’s getting a construction loan and the bank wants him to demonstrate good credit habits. CITI turned him down. He plans to use it moderately and pay it off in full every month.
He should get a prepaid Visa card, where you load the money on in advance, pretty easy to get obviously. After one or two times they will likely offer him a regular card. Once he has that, he should use it but NOT pay the full balance each month, always carry a little forward. Within another six months they will likely increase his limit, probably more than once. In under a year he’ll have a good rating and likely qualify for what he wants.
Or you could co-sign for him, it sounds like you know he’s good for the debt.
This isn’t necessary (and wastes money on interest). All he needs to do is establish a history of on-time payments and he will be eligible for more cards than he can shake a stick at. Ignore any advice you see about how to micromanage your credit score to within six tenths of a point.
He needs a “secured” credit card. That’s how I started out.
You send the credit card company a certain amount of money, say $500, which they hold on to. In return, they issue you a card with that much of a limit. After a year or so of making payments on time, they refund your money and upgrade you to a regular card.
I didn’t think a secured card would have any effect on his credit. Sounds like a plan, thanks. He is about the most financially responsible person I know.
He can get a store credit card (any store he normally goes to) and use it to make purchases for a few months. Pay off on time every month. After six months apply for regular credit, as he will have established responsible credit use.
Since he did get loans and paid them early, he does have a credit score. Have the people at the bank actually said he doesn’t?
Apparently I didn’t make myself clear. I truly did not have a credit history. Using a secured credit card is how I built up a credit history.
You can add his name to one or more of your accounts. Just add him as an approved buyer and get a card in his name. You don’t even have to tell him about it, or give him the card. The length of time that account has been open and paid on time will then be added to his credit record.
Voila! Just be sure to take him off again if you ever find yourself headed for trouble.
Way back in my twenties, I was an authorized user on my mother’s account, but it did absolutely nothing to establish my own credit. I had a credit report under my name but all it said was “insufficient information to establish a credit rating” or some such.
I did what Broomstick recommended above and got a store credit account with a low limit, used it regularly, and paid it off in full every month. You want to use the card every month, but your credit utilization should only be about 5 to 20 percent of your credit limit. Credit utilization refers to the balance on the statement, not (as some suppose) the amount you carry over from month to month. The amount you carry over doesn’t matter much to your score, as long as credit utilization stays in the 5-20% range. Paying off in full will save you from paying insane amounts of interest, though. After 6 months or a year of that, I applied for a Mastercard and was accepted. By that time my FICO credit score was over 700.
My sister’s strategy for establishing credit was to apply for every offer in sight, in the hopes that maybe somebody somewhere would take a chance and give her a card. That doesn’t work so well, because every application triggers a hard inquiry which lowers your score slightly. My rule of thumb is not to apply more than once every six months, usually much less.
believe it or not, it’s the habit of paying off his debts early that is hampering him the most. Creditors hate that. Not because they make less money (though that part is true also) but because when the make a loan, they have it figured out all the way to the last payment. When you make extra payments and pay off the loan early it makes more work for them to refigure and adjust all the payments after.
ETA that only partly made sense, but I hope you get what I was trying to say
No. This is a myth. Basing your behavior on this idea is unnecessary. It is also irresponsible and wasteful.
Your on-time payment history (whether carrying a balance or not) is the single largest component of all commonly-used credit scoring models, including the much-bally-hooed FICO scores. (There are dozens of FICO models, by the way, used for different purposes; there’s no one single FICO score.)
The other factors are the length of your credit history (longer = better), the mix of different types of credit (cards, mortgages, car loans, student loans, etc.), and your utilization ratio.
Credit utilization is the factor that tracks how much of your outstanding credit is currently used (for cards, that means any balance you are carrying forward.) You want this low. There are people out there who will tell you to deliberately massage your utilization until it reaches 30%. These people are wrong. FICO themselves will tell you that the utilization ratio that best predicts future creditworthy behavior is a low one, preferable under 10%. Guess what: a utilization ratio of 0% is low. Will carrying a small balance increase your credit score in the short term? Possibly, by a tiny amount. Is that worth the interest you’re paying on that balance? Hell to the no.
Don’t pay interest unless you have to.
No, the re-figuring is no problem for them. I’ve done it myself – when writing the computer programs that do the loan processing. But the workers at the bank don’t have to do anything except enter the payment amount – all the rest is done automatically for them.
But the making less money because you pay off the loan early – that part IS a problem for them.
It really isn’t. The vast majority of residential mortgages are repaid early because the owner refinances, chooses to pay extra, or they sell the house.
Yes, the bank will earn less interest, but they also get the principal back sooner, which can be used for further investment. It’s time value of money, which is Finance 101 stuff. If you wrote a mortgage amortization calculator you should have learned that. 
This is key. My we (and my son) didn’t realize this. So he got his first credit card, and it only had a $500 credit limit, and he hit the limit most months. And despite paying it off regularly, that HURT his credit score. He had a hard time crawling out of that hole. He ended up scrupulously using the thing only to buy lunch, and not for things where it might have been useful, like internet purchases. I think he has a normal credit score, now, but I’m not sure.
No bank is going to deny you a loan because they’re concerned you’ll pay it off too quickly and someone in a smokey room with a green visor will have to rewrite all your payments.
Yes, they have all your payments figured out to the very last one. But each month, when they print your statement/bill they re-figure the breakdown of that specific payment. It takes no paperwork and the computer can do it faster than you can pronounce amortization.
If you have a mortgage, you can probably check your amortization table for the remainder of the loan. Pay a few extra bucks on the next payment and the table will change automatically. I pay enough extra on mine to pull in the final payment by almost two months each month.
That’s a tough one. I tell people to get a credit card as soon as they turn 18, then, once a month use it for a tank of gas or some other small purchase and pay it off right away. Just to start establishing credit. It shows that you are paying on time, but also, when you go to buy a house or a car or something, when you’re 22, you’ve already got 4 years of history and that’ll really help.
OTOH, if you can’t control your spending, to the point that a $500 credit card debt it burying you, then you may be better off without one.
Having said all this, from time to time I’ve looked into getting a card for my daughter. She’s a minor right now, it would be one that I would use for little things, but just to get something established. But from what I can tell, if she’s under 18 it won’t really make a difference any way. At best I might be able to add her to one of mine. But there’s a difference between being an authorized user and joint account holder. It may be different from one card to the next as well. I just figured as long as my credit is really good and I go above and beyond paying my cards on time (I usually pay once or twice a week for anything that’s posted), I might as well spread some of that good credit to her so she can start off with good credit instead of no credit.
A good strategy would be to get a secured card in her name and then use it for fixed monthly charges like Netflix, cable, etc. Setup autopay from your bank so that the card is paid in full every month. Discover has a secured card that will convert to a regular card after a certain amount of time.
Bank of America allows you to co-sign a credit card with her. Both of you go to one of their branch offices to set it up. I’m not sure if you can do it before she’s 18. Co-signing means both of your credit scores are linked to the card. Be careful about letting her use a co-signed card since bad behavior can affect your score.
She wouldn’t use it, she wouldn’t even know it exists. My plan, when I’ve thought about it would be to get a card, in her name, that I would use for gas or something once a month-ish, to be paid off right away. Then at some point when she’s over 18 and ready (whatever that means) for her first credit card, give her that one…or now that I think of it, have her apply for a different one since that one would be pristine.
But then I wonder if an 11 year old can even have a credit card in their name/SSN and since my credit is spectacular (not to toot my own horn or anything), I’d rather not get another one.
Theoretically, I could add her name to a utility bill or something. I’m just trying to think ahead. I think about all the parents that have to co-sign for their kids first car or apartment or credit card. Getting a 4 or 5 year jump start on her credit would help to eliminate that.
Also, to reiterate, I know myself and my ability to use credit* to know that I’m not going to wreck her credit before she needs it.
*My combined credit (card) limit is over 20k and my combined balance is typically under hundred or two hundred dollars. As I said, I pay them off ever few days.