Moms

Students will have to learn new ways to build credit histories

Parents can add building credit to the long list of things to do to raise their children.

After years of easy-to-get credit cards for college and even high school students, credit cards companies are no longer allowed to market on campuses. And those younger than 21 must obtain a co-signer or proof that they can make payments to obtain a credit card.

This provision of the CARD Act, which went into effect in February, is designed to keep cards out of the hands of younger consumers, who often lack the financial knowledge to properly use them.

The consequence of easy credit was a generation with credit card debt before they even had jobs. Last year, student lender Sallie Mae said 84 percent of students used credit cards, with the average holding a whopping 4.6 cards. The average debt loads were high -- $3,173 -- but even worse was the monthly payment record: 17 percent paid off the balance each month, and 1 in 4 paid the minimum.

Now that the lid is on the credit card candy jar, the flip side of the issue has emerged. The next generation of students will have thin or nonexistent credit histories.

This could prevent them from getting a credit card, an apartment or even a job, consumer advocates warn.

It could also be an obstacle to qualifying for favorable interest rates or a loan.

"This is a real wake-up call for parents," said Maxine Sweet, vice president of public education for credit bureau Experian. "But many of them are screaming 'I don't want my name on their card.'"

Young consumers are left with few other choices. Part of one's credit score is based on length of credit history.

"There are many things you can do to get a better credit score, but there's no way to get around the time factor," said Curtis Arnold, founder of a credit card information website, Cardratings.com, and author of the book How You Can Profit From Credit Cards.

Parents can help create a credit history for kids -- and teach a little financial sense along the way.

For one, add a child as an authorized user to parents' credit card accounts.

"I put my son on a couple of our cards when he was 16," Arnold said. "There's no application, no underwriting -- it's a 60-second phone call."

How did he control his son's usage? Easy -- he didn't give him the card until he was in college.

"You don't have to give him a card to get it put on his credit report," Arnold said.

Ask your card issuer whether they report authorized users to the credit bureaus. Some do, some don't, and some report only to one or two of the three big bureaus. Try to find enough cards with financial institutions to cover all three, Arnold advised.

Remember, your own credit card payment record shows up on your children's report. So if you aren't a timely payer, you could hurt their credit along with your own.

Another move is to co-sign a credit card, as Sweet did for her sons when they were in college. Then she had the bill sent to them.

"I have seen so many parents, my family members included, that co-sign a card and pay the bills themselves," she said. "What have you taught kids from that? Even if you're funding them, bite the bullet and put the money in their checking account and make them pay it."

However the card gets paid, set up online access, said Bill Hardekopf, chief executive of LowCards.com, which compares more than 1,000 credit cards.

"Get on every day to see what Junior is charging," he said, and make sure that he pays on time.

Even more than with authorized user arrangement, co-signers share responsibility for the card. If they don't pay the bill, it will hurt your credit record as well, Arnold said.

Hardekopf said he co-signed credit cards for his two children when they were high school seniors.

"We wanted to them to make their mistakes while under our roof," he said.

Secured credit cards are another option. These cards often carry fees and high interest rates, but are easier to get because they are tied to a bank deposit, Hardekopf said.

He recommends Orchard Bank and Public Savings Bank for secured cards, because both report to credit agencies.

Because a secured card is tied to a deposit, paying late won't ding your credit report, Arnold said.

Among other options, gas and store cards appear on your credit report and can be easier to obtain than credit cards, Arnold said. He also recommends making interest-only payments on student loans while still in school to add to your record.

Whatever you do, start as early as high school, advocates advise.

"Time starts working in your favor the earlier you start," Arnold said.

Teresa McUsic's column

appears Fridays.

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