Latest / Earn Your Leisure / Establishing Credit at a Young Age: Set Your Kids up Right

Transcript

Establishing Credit at a Young Age: Set Your Kids up Right · Earn Your Leisure

• 0:00
  Speaker 1: There's the importance of having credit at a young age.
• 0:02
  Speaker 1: Like you said, one of those factors is the credit
• 0:05
  Speaker 1: is right. And so if we're getting credit at twenty
• 0:08
  Speaker 1: twenty three years old, we've missed some years that we
• 0:10
  Speaker 1: actually could have. So talk about the importance of establishing
• 0:13
  Speaker 1: credit at a younger age, maybe talk about authorized users
• 0:16
  Speaker 1: and things like that.
• 0:16
  Speaker 2: Yeah.
• 0:17
  Speaker 3: Absolutely, So for the parents out there, I recommend every
• 0:21
  Speaker 3: parent if you can, if you have a credit card
• 0:24
  Speaker 3: that you know you're not going to pay later or whatever,
• 0:26
  Speaker 3: with good history, I recommend to add your child at
• 0:30
  Speaker 3: no later than seventeen. Now, if your child is eighteen,
• 0:33
  Speaker 3: obviously you can add them, but adding your child from
• 0:36
  Speaker 3: the ages of sixteen through seventeen will set them up
• 0:40
  Speaker 3: for when they turn eighteen, they'll already have an established
• 0:43
  Speaker 3: credit profile. Most people don't realize that you do not
• 0:46
  Speaker 3: have a FYCO score just because you turned eighteen. You
• 0:49
  Speaker 3: have to have six months of credit history with at
• 0:51
  Speaker 3: least two accounts before FICO will issue you a credit score. Right,
• 0:56
  Speaker 3: So as opposed to just starting at eighteen and building
• 0:59
  Speaker 3: your own credit. If if you have a parent, a
• 1:01
  Speaker 3: responsible parent, that will put you on their credit card
• 1:04
  Speaker 3: prior at least six months prior to your eighteenth birthday,
• 1:07
  Speaker 3: you'll already start off, you know, a little ahead of
• 1:09
  Speaker 3: the pack, right. So, as opposed to getting those entry
• 1:11
  Speaker 3: level credit cards, sometimes you can get quality offers because
• 1:15
  Speaker 3: it's really easy to get a seven hundred credit score,
• 1:17
  Speaker 3: especially if you have no collections or you haven't messed
• 1:19
  Speaker 3: up your credit yet. It is super easy to get
• 1:21
  Speaker 3: seven hundred. So adding, if you have the opportunity to
• 1:26
  Speaker 3: be an authorized user on a family member's card, and
• 1:30
  Speaker 3: if you share an address with them, it's better because
• 1:32
  Speaker 3: nowadays the anti abuse laws effects out effects trade lines
• 1:37
  Speaker 3: authorized users, and so if you have the same address
• 1:40
  Speaker 3: or the same last name, you'll be more credited for
• 1:42
  Speaker 3: those accounts, right or for the yeah, for the authorized
• 1:45
  Speaker 3: user accounts setting once you turn eighteen though, because this
• 1:49
  Speaker 3: is the mistake a lot of parents make, they'll put
• 1:52
  Speaker 3: their child on their credit card at like fifteen, sixteen, whatever,
• 1:55
  Speaker 3: and then whenever they turn eighteen, the child will have
• 1:57
  Speaker 3: like a seven hundred credit score.
• 1:59
  Speaker 2: And as opposed to making.
• 2:02
  Speaker 3: The child or having the child apply for their own accounts,
• 2:05
  Speaker 3: they just kind of lean on lian on mom's card
• 2:09
  Speaker 3: or mom's credit history and think that it's going to
• 2:12
  Speaker 3: take them far.
• 2:13
  Speaker 2: And that's where they run.
• 2:14
  Speaker 3: Into the situation of having a high credit score but
• 2:16
  Speaker 3: not a lot of credit, not a worthy credit credit
• 2:19
  Speaker 3: borrow wing. Right, So you need to make sure that
• 2:23
  Speaker 3: when that child turns, it turns eighteen. Like on my
• 2:26
  Speaker 3: children on their eighteenth birthday, we're going to be applying
• 2:28
  Speaker 3: for a credit card on their eighteen birthday because the earlier,
• 2:31
  Speaker 3: the earlier, the better. Apply for a credit card. Please
• 2:35
  Speaker 3: apply for a credit card before a student loan. That's
• 2:37
  Speaker 3: just like a side note, that's one of the things
• 2:40
  Speaker 3: that's one of the mistakes that I wish that I
• 2:42
  Speaker 3: can catch with a lot of people. Having a credit
• 2:45
  Speaker 3: card be your first established account, your credit age is
• 2:48
  Speaker 3: going to be reliant on that account.
• 2:51
  Speaker 2: The great thing about credit cards is they can be
• 2:52
  Speaker 2: open forever.
• 2:53
  Speaker 3: Like there is no end date to a credit card
• 2:56
  Speaker 3: unless you choose to close the card or the bank
• 2:58
  Speaker 3: chooses to close the card. Whereas a loan, every loan
• 3:01
  Speaker 3: has a term date. Every loan will end eventually. So
• 3:05
  Speaker 3: when your credit age is based on a loan, once
• 3:08
  Speaker 3: that once that account closes, yeah, your credit is going
• 3:12
  Speaker 3: to be affected drastically. Right. So if you have your
• 3:14
  Speaker 3: first established account as a credit card. That's sort of
• 3:16
  Speaker 3: like a safety blanket for your credit age. And so
• 3:20
  Speaker 3: make sure at eighteen apply for a card. It can
• 3:22
  Speaker 3: be it can be a secure card, it can be
• 3:24
  Speaker 3: a subprime card. Whatever. Apply for a credit card and
• 3:27
  Speaker 3: then start to build your own credit history because authorized
• 3:30
  Speaker 3: users can only take you so far, and not very far.
• 3:32
  Speaker 2: Nowadays, it's a quick fill up.
• 3:34
  Speaker 1: Because you did bring up closing cards, and I know
• 3:36
  Speaker 1: a lot of people as they're trying to fix their
• 3:37
  Speaker 1: credit like, all right, well I pick it off, let
• 3:39
  Speaker 1: me close it. Talk about how that could negatively affect.
• 3:44
  Speaker 2: Yeah, it could.
• 3:46
  Speaker 3: My rule of thumb when it comes to closing credit
• 3:48
  Speaker 3: cards is if you have if the credit card has
• 3:50
  Speaker 3: an annual fee and you're not getting any increases and
• 3:54
  Speaker 3: the it's just not worth it to keep it. There
• 3:57
  Speaker 3: will be there will come a time where you'll probably
• 3:59
  Speaker 3: want to owse that card. When you close that card
• 4:02
  Speaker 3: is super important.
• 4:02
  Speaker 2: Number one.
• 4:03
  Speaker 3: If you are applying for anything, any large purchase like
• 4:07
  Speaker 3: a car or home within the next six months, it's
• 4:09
  Speaker 3: not the time to close that card.
• 4:10
  Speaker 2: Close it. After you get your car, your home, whatever.
• 4:14
  Speaker 3: The only time I would suggest you closing the credit
• 4:16
  Speaker 3: card is if you if you know, like I said,
• 4:18
  Speaker 3: six months free of any applications, and also make sure
• 4:22
  Speaker 3: that you have another card before you close that card,
• 4:26
  Speaker 3: like do not like I see people all the time
• 4:28
  Speaker 3: like I just hate this card, I want to close it,
• 4:30
  Speaker 3: et cetera. And it's just like that's going to do
• 4:32
  Speaker 3: more harm than good. I have a two hundred dollars
• 4:34
  Speaker 3: Capital one card that I've had since college. That card
• 4:37
  Speaker 3: is still open. I haven't gotten an increase in years.
• 4:39
  Speaker 3: I don't even care to use the card. I keep
• 4:41
  Speaker 3: it open.
• 4:41
  Speaker 2: Specifically because credit age.
• 4:44
  Speaker 3: An aged credit card is the most beneficial thing that
• 4:47
  Speaker 3: you can have on your credit report, that like the
• 4:50
  Speaker 3: most and it's one of those things that's like the
• 4:52
  Speaker 3: gift that never never stops giving. Because every single three
• 4:55
  Speaker 3: to six months that a car ages, it's going to
• 4:58
  Speaker 3: add more to your credit ad and also your FICO points.
• 5:01
  Speaker 3: So keep that in mind. So don't close a card
• 5:04
  Speaker 3: unless you have to. If you if you have a
• 5:07
  Speaker 3: card that you don't use, put a subscription on it.
• 5:09
  Speaker 3: I have Netflix, like use one, use pick one of
• 5:13
  Speaker 3: your subscriptions that you probably have coming out of your
• 5:15
  Speaker 3: bank account. Assign those to each of you know, each
• 5:18
  Speaker 3: of your credit cards so that it can have usage,
• 5:20
  Speaker 3: so the bank will not close it due to non usage.
• 5:24
  Speaker 2: So what about putting your child on the credit card? Yes,
• 5:27
  Speaker 2: as a child, Yeah, for I.
• 5:29
  Speaker 3: So one of the things that people think that makes
• 5:33
  Speaker 3: some difference is if they add their child at like
• 5:34
  Speaker 3: twelve or thirteen. That doesn't make it regardless if you
• 5:38
  Speaker 3: add your child at twelve or if you add them
• 5:39
  Speaker 3: at seventeen, it will not make a difference in terms
• 5:42
  Speaker 3: of the effect that it will have on their credit reports.
• 5:45
  Speaker 2: That's a misconception.
• 5:46
  Speaker 3: However, me personally, I would suggest, like I said, adding
• 5:50
  Speaker 3: your child at like seventeen when you when someone asks
• 5:53
  Speaker 3: their child at thirteen, to me, it just that's a
• 5:55
  Speaker 3: that's that's what seven years, seven eight years until they
• 5:59
  Speaker 3: turn eight eighteen, and that's a lot of room. It
• 6:02
  Speaker 3: leaves a lot of room open for a mistake. What
• 6:03
  Speaker 3: happens if you get a lay payment on that card
• 6:05
  Speaker 3: and now your child's credit will be affected before they
• 6:08
  Speaker 3: can even establish credit. So we never know what can happen, right,
• 6:12
  Speaker 3: So I just for I just recommend, like I'll personally,
• 6:16
  Speaker 3: I'm adding my children at when day turn seventeen. As
• 6:19
  Speaker 3: long as you have six months before they turn eighteen,
• 6:21
  Speaker 3: they're fine.
• 6:22
  Speaker 1: I was a beneficiary of that, so I was added
• 6:26
  Speaker 1: to my mom's I told the story before, but I
• 6:28
  Speaker 1: was added to my mom's American Express card at six seventeen.
• 6:32
  Speaker 1: And so now even when I get the cards, it'll
• 6:34
  Speaker 1: say member since eighty five, even though I was born
• 6:36
  Speaker 1: in eighty two. But my credit history goes back that far,
• 6:39
  Speaker 1: so it's over thirty seven years. So every time I
• 6:42
  Speaker 1: get a new card, it gets averaged into that. Yeah,
• 6:45
  Speaker 1: so I think.
• 6:45
  Speaker 2: When iutang that's a blessing, it was.
• 6:47
  Speaker 1: A blessing, and that it's still a blessing. Actually I
• 6:49
  Speaker 1: still have the card because I just want that history
• 6:52
  Speaker 1: because sure that thirty seven years plus a one they average,
• 6:55
  Speaker 1: it makes it like sixteen years of credit age. So
• 6:58
  Speaker 1: I'm like that works perfectly.
• 7:00
  Speaker 3: In American Express is a huge relation bank, like indeed,
• 7:03
  Speaker 3: man having a long standard relationship with them, you can
• 7:06
  Speaker 3: get anything.
• 7:07
  Speaker 2: This is true.
• 7:08
  Speaker 1: But we talked about the number seven hundred and it's
• 7:11
  Speaker 1: key and I don't want people to you know, some
• 7:13
  Speaker 1: people may not have seven hundred, but it feels like
• 7:15
  Speaker 1: that's the goal. But there are people like, what are
• 7:19
  Speaker 1: the numbers that in the range that people should be
• 7:21
  Speaker 1: trying to get to seven hundred seven fifty. I know
• 7:24
  Speaker 1: we got some eight fifties out there.
• 7:26
  Speaker 3: Yeah, So I'm a little different when it comes to
• 7:29
  Speaker 3: credit scores, right, because I know the scoring model and
• 7:31
  Speaker 3: how much your credit profile matters. Most people don't believe
• 7:37
  Speaker 3: me when I say I had over one hundred thousand
• 7:39
  Speaker 3: dollars in credit card limits before my score was seven hundred, right,
• 7:42
  Speaker 3: and it was simply because I learned how to set
• 7:45
  Speaker 3: up my credit profile that will that far past my
• 7:49
  Speaker 3: credit score. There's a lot of time there's a lot
• 7:51
  Speaker 3: of people who have over seven hundred and still can't
• 7:53
  Speaker 3: get approved for over ten thousand dollars twenty thousand dollars
• 7:56
  Speaker 3: right because their borring power does not match their score.
• 7:59
  Speaker 3: So I don't ever recommend a specific score. What I
• 8:04
  Speaker 3: will say is, like I always say, a healthy profile
• 8:06
  Speaker 3: will translate if people need to focus on their credit
• 8:10
  Speaker 3: profile more meaning making sure you don't have any lay payments.
• 8:13
  Speaker 3: If you do have lay payments, try to rectify those.
• 8:17
  Speaker 3: If you have collections, try to try to rectify all
• 8:20
  Speaker 3: of your credit issues.
• 8:22
  Speaker 2: Make sure that you have at least.
• 8:24
  Speaker 3: Four accounts open at all times, like after you begin
• 8:28
  Speaker 3: to build credit. There should never be a time where
• 8:29
  Speaker 3: your credit profile goes below three open account or goes
• 8:33
  Speaker 3: below four open accounts any time. Regardless, you can have
• 8:36
  Speaker 3: an eight hundred credit score. If you do not have
• 8:38
  Speaker 3: at least four accounts open, any application that you do,
• 8:42
  Speaker 3: you're going to get what's called an empty profile penalty, right,
• 8:47
  Speaker 3: And we don't see this as consumers. We can't see
• 8:49
  Speaker 3: this on our credit score or our credit report. However,
• 8:52
  Speaker 3: when it comes to lenders and how our credit reports
• 8:55
  Speaker 3: are are assigned and how they translate over to their system,
• 9:01
  Speaker 3: if you have less than three accounts open, four accounts open,
• 9:04
  Speaker 3: then regardless of your score, you automatically panalize. You're automatically
• 9:07
  Speaker 3: moved down to a lower tier of borrowing power, multiple
• 9:12
  Speaker 3: tiers rather. So that's going to be more important making
• 9:15
  Speaker 3: sure you're not applying for a let's just say an
• 9:20
  Speaker 3: American Express card if you have just opened up two
• 9:24
  Speaker 3: other credit cards in the last six months.
• 9:26
  Speaker 2: Right, So those are the things that speaks more to
• 9:28
  Speaker 2: like your approval.
• 9:29
  Speaker 3: Now, when it comes to score, if I had to say,
• 9:31
  Speaker 3: I would say six eighty and above, you pretty much
• 9:35
  Speaker 3: with a healthy profile you pretty much can get anything.
• 9:39
  Speaker 2: Six eighty and it's super.
• 9:41
  Speaker 3: And the thing is, it's so And I know this
• 9:42
  Speaker 3: probably sounds far fetched to a lot of.
• 9:45
  Speaker 2: People, but it's so easy to get a six eighty.
• 9:47
  Speaker 3: Like I actually tell people, if you don't have at
• 9:49
  Speaker 3: least a six fifty, then usually one or one of
• 9:52
  Speaker 3: three things are the case. You had a recent collection
• 9:55
  Speaker 3: within eighteen months, a recent aid payment within twenty four months,
• 9:59
  Speaker 3: or you have high youation. Because as long as you
• 10:01
  Speaker 3: don't have those, you at least you should at least
• 10:03
  Speaker 3: have a six fifty, just in terms of how your
• 10:05
  Speaker 3: credit scores, how our credit scores are allotted