Question: My 26 year old son is unable to get a credit card and would like to begin to establish a credit rating. We have gone with him and cosigned (we have great credit rating) and still he was turned down by his bank. His lifestyle is the problem I think. He works seasonally. He's a waiter and part time worker on the ski slopes in the winter. He is a white water rafting guide, waiter and carpenter in the summer. He doesn't make much money but he always pays his bills. He owns a car but took the loan for that through us. (He always pays off loans to us). He rents. He's reliable and responsible but his lifestyle hasn't been one of accruing credit. In the past this may not have mattered, but now (with the current economy) it does and he can't get a card. He has some inheritance of about $13,000 which he has invested. Can this help? Can you advise any next steps? Thanks for any help. Patricia, E. Fairfield, VT
Answer: What a wonderful, intriguing set of jobs your son has cobbled together. It's an adventure. But to continue with this lifestyle he should maintain his conservative habits with his money.
Many Americans are choosing to earn a living with multiple jobs, some by choice and many more by necessity. The financial insecurity is driving them toward a more conservative attitude toward credit cards. For instance, the number of open credit card accounts is down 23.2% from its peak reached in the second quarter of 2008. Debit cards are more popular than credit cards, too. It's interesting to see that Tyler Cowen, economist at George Mason University and blogger at marginalrevolution.com argues that the current slump may signal the end of family-deficit spending. I think he's spot on and that the trend is to be applauded. .
Okay, now to the practical issue of your son getting a credit card. He might have to take out a "secured" credit card. He'll open up a special savings account with a bank or credit union that issues him the card. (He'll probably get a better deal with a credit union.) His credit limit is equal to or somewhat less than the amount on deposit. He should make some interest off the security deposit, but in reality it will be practically nothing considering today's low rates on savings. Secured credit cards come with higher fees than the traditional "unsecured" credit card. .
Eventually, after showing a pattern of paying off his secured credit card bills on time, he can shop around and switch to a traditional low-fee unsecured credit card.
I always emphasize that everyone should strive to pay off the balance at the end of the month. But it's especially important for anyone with uncertain or unstable income to avoid carrying a balance. It's all too easy to fall behind on the payments and for the debt to creep up. He wants to build up a credit history and credit score? That's fine, just avoid taking on debt.