How to Get Your Kid A Good Credit Report

Like many college kids, my daughter Hannah ended up with a credit-card problem. But it wasn't the problem I feared.

As students head off to college, many parents worry that their sons and daughters will apply for a fistful of credit cards and amass a heap of debt. Indeed, 42% of freshmen have credit cards, and they carry an average balance of $1,585, according to a study by college lender Nellie Mae.

But in her freshman year, Hannah didn't rack up a single charge -- because she had a heck of a time just getting a card.
• Getting carded. To be honest, I don't really want Hannah to have a credit card. But I do want her to have a decent credit score. And one of the best ways to earn that score is to get a credit card, charge a small sum each month and then dutifully pay off the balance.

But which card? For years, Hannah had regularly been offered credit cards by the Continental frequent-flier program, so I figured the folks there were eager for her business. Instead, what she got was a swift rejection.

Next, Hannah applied for a credit card specifically designed for college students. That earned her another rejection, on the grounds she had insufficient credit history.

That got me curious, so I headed to AnnualCreditReport.com, where once a year you can get a free copy of your credit report from the three major credit bureaus. I retrieved one of Hannah's reports and, sure enough, she had no credit history.

Indeed, credit expert John Ulzheimer, author of "You're Nothing but a Number," says pulling your kid's credit reports should probably be your first step. That will allow you to see what sort of history your child has and whether there are any errors that need correcting.
• Seeking approval. Got a kid like Hannah, with no credit history? If your child has a checking or savings account, see if the bank will also give your kid a credit card. Alternatively, your child could apply for the store cards offered by many retailers, which are typically easier to get than general-use credit cards.


College students might also respond to one of the credit-card solicitations they receive on campus. These, however, don't seem as prevalent as they used to be. Hannah has received only a few offers through the mail and has never seen a card issuer with a booth on campus, and some of her friends at other colleges report the same thing.

If your child has a blemished credit history, the only option may be a secured card. With these cards, you put down maybe $300 or $500 as collateral. That sum then determines the card's credit line.

Before applying for a secured card, check that the fees are reasonable, that the card issuer reports to the major credit bureaus and that the card converts to an unsecured card after a year or two, Mr. Ulzheimer says. Secured cardholders should charge only a nominal sum each month, since they could hurt their credit score by using more than 20% or 30% of their available credit.

Another trick: If you buy a new or used car for your teenager, have your child cosign the auto loan. "I wouldn't buy a brand-new Hummer to establish a credit record for the kid," says Scott Bilker, founder of DebtSmart.com. "But if you're going to buy a car anyway, it would be a quick way to get a credit record."

With Hannah, however, I didn't use any of the above strategies. Instead, I simply added her name to my Visa card. Within a month, the card's credit history was included in her credit report, so she's now in good shape to apply for a card on her own.

There are two ways to add a child. In the past, many parents have included their children as authorized users. This strategy might work through the end of 2008, Mr. Ulzheimer says. But the credit bureaus are closing this loophole because it was being abused by some credit-repair businesses.

What to do? You could add your child as a joint account holder. Be warned: While authorized users aren't legally liable for a card's debts, joint account holders are. In addition, if you want to end the arrangement, you can't just take your child off the joint account. Rather, you have to cancel the card entirely.

Source : online.wsj.com