Credit advice for my son at college

It occurred to me that this might be a helpful post for anyone else to pass on to their kids.
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Son,

I've gone over most of this before, but I think it's good for you to have it in writing and perhaps review it from time to time. You may find I'm getting smarter as you get older.

Credit is a tool, just like a hammer is a tool. A hammer can help you build wonderful things or it can damage your thumb for a long time. You can make a choice out of frustration in one moment that will hang on your credit record for seven years. Yes, seven years.

Let me explain a bit about the big picture, because some people twice your age are not aware of how it works. There are the three main credit reporting agencies (CRA) - Equifax, Experian and TransUnion. They truly don't care about you, they just report the information passed on to them from various companies you will do business with - banks, credit card companies, mortgage companies, utilities, etc.

There is no requirement that any bank you have a business relationship with report to any or all three CRAs. That's why you might see one account reporting on just one report and another account on all three.

The important thing is that there are regulations for how this data (referred to as a tradeline) is handled once it is reported. For now, the most important point is that a tradeline, good or bad, will not "fall off" your credit report for seven years.

You are just barely 19, in your first year of college and at the start of your adult life. You are also just establishing your credit history. You now have an Amex Blue student card, which is great! Amex is a very ethical, well established company and if you maintain that relationship, you will be very happy over the long term.

Understand that even being the best of the bunch, they are in business to make money, not to be your buddy. They can and will charge you interest, fees and generally attempt to make money where and whenever they can. You just experienced paying the Gap a few days late and they promised you a $25 late fee. Perhaps that will be enough to vindicate my words, so I'll repeat - they CAN and they WILL charge you where they can.

You may resent it, think it's unfair, etc. but the fact is you signed an agreement with them and now that you're legally responsible for your actions, you must not only hold up your end of the agreement but start to fully comprehend what you're signing up for when you get that free t-shirt as a promotion for applying for their credit card.

My father never gave me any guidelines as I'm attempting to do here. No, that's not true, he gave me some exceptionally useless advice. I wish I were making these up...

"Love many, trust few, always paddle your own canoe."
"Never lend anyone money, your car or your wife."
"You're always right, except when you're wrong."
"No matter where you go, there you are."

I think you can tell by these quotes that it won't be too difficult for me to raise the bar on fatherly advice.

There are a few simple rules for managing your credit that will keep you on the painless side of their rules.

1) Don't purchase something unless you NEED to. Paying off some impulse purchase a year later at 18% interest is a great reminder that the best way to save money is to not spend it.

2) When you charge something, know that you can pay for it immediately. In other words, you could pay for it cash today but by charging it you are helping to build your credit. You are fully capable of paying for it in full when the bill arrives. Do not charge based on money that is coming to you - it may never arrive, or come later than you counted on.

3) Pay the bill when it arrives. Do not concern yourself with the due date. If you try to pay by the due date, it will invariable arrive late and they will gleefully hit you with a late fee. If you followed rule 2, there is no problem paying for it in full when the bill arrives.

4) The day will come when you won't follow rule 2 and you can't pay the bill in full when it arrives. This is not the end of the world, but you must adopt a new strategy and stick with it. You may pay the minimum or any amount above the minimum, but you still must follow rule 3 and send it immediately. The new strategy is simple - if you can't pay the bill in full, you must stop using credit. Period. Once you have paid the amount outstanding, you can bounce back to rule 2. If you wind up here at rule 4, stop charging again.

5) If you can't get payment to them in time, call them. There may be a late fee, just pay it and realize it's the cost of ignoring rule 3. If you're only late once in a while, you can get your late fees refunded.

That's it, son. That's all you need to know about credit. If someone had told me these simple rules and I had followed them, my credit problems would never have happened.

Love,
Dad

 

You may be surprised to hear this, but my son (like most teens) has no time for anything he's not interested in, and until recently, finances were of no interest to him.

Now that he's on his own, at college in another state, he's juggling some expenses. I've severed the financial cord in that I have given him a set amount towards his college and he has to pick up the rest, including his books and living expenses.

I do believe that as parents, what we do is more important than what we say. He has lived through many of my struggles and has certainly seen my commitment in the last five years to getting on top of things. I have explained that much of the hard learned rules I'm passing on are designed to keep him from falling into the same abyss I've struggled with.