Beating Broke

Personal Finance from the Broke Perspective

Help Your College Student By Adding Them as an Authorized User to Your Credit Card

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I got my first credit card when I was in college.  At first I was responsible, but then I began to charge more than I could afford on my meager student salary.  I still remember the first purchase I made on my credit card that I knew I could not pay off immediately—a $37 tennis racket because my friend and I wanted to play tennis that summer.

Unfortunately, that lead to a habit of over charging because I had very little income coming in.  My experience is not unique.  Approximately 90% of undergraduate and graduate students who have credit cards carry a balance each month (Debt.org).

Boost a Student's Credit Score
Boost Student’s Credit Score

If you’d like to help your teen or college student develop a responsible credit pattern as well as a good credit score, the secret may not be to get him his own credit card, but instead to make him an authorized user on your account.

As an authorized user, she’ll be able to use your card.  You can either pay what she charges or have her pay what she charges.  In addition, you’ll be able to keep an eye on her purchases and make sure she is using her privileges responsibly.  This can get her into the habit of responsible credit card use so she can avoid debt in the future when she has her own card.

A Few Caveats

Before you pursue putting your child on your account as an authorized user, you’ll want to cover a few bases:

Have a Strong Credit Score

If you add your child as an authorized user to your account, she will “inherit” your credit score.  If you have a high credit score (generally 700 or above), you will be giving your child quite a gift.  With a high credit score, when she finishes college, she’ll more easily be able to rent an apartment and get her own credit card later in life.

If your credit score is low, you’ll be saddling her with an obstacle to overcome.  It’s better for her to have no credit score than to inherit your low credit score.

Choose a Card that Reports Authorized Users to the Credit Bureaus

Not all credit cards report authorized users to the credit bureaus, which means your child won’t get your credit score.  In general, the major credit cards do, while credit unions may not.  To be sure before you add your child, confirm with the credit card company that they will report authorized users.

Only Do This With Responsible Children

Since you are ultimately required to pay any expenses put on your credit card by your child, only put a child who is financially responsible on your card as an authorized user.  If your child has been irresponsible financially in the past, there is no use in tempting him with your line of credit.

See If There Is a Fee for Authorized Users

Finally, keep in mind that some credit cards charge a fee to add an authorized user.  You’ll want to verify this is not the case for your particular card before you add your child.

If you’d like to help your child develop financial maturity and secure a good credit score, consider adding him as an authorized user.

Have you added a child as an authorized user or were you added as one?  If so, what was your experience?  Would you recommend doing this?

 

The Argument for Freezing Credit: Is Your Social Security Number Easily Found on the Web?

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You’ve likely heard about the recent security breaches at popular stores like Target, Neiman Marcus and Michael’s.  While it’s bad enough that so many customers’ security was compromised, what’s even worse is the reports that these customers’ personal and credit information often ends up on a large database to be bought by criminals for as little as $40.

You might imagine some shady database that is hard to find unless you’re a criminal.

Unfortunately, the truth is that your personal information is surprisingly easy to find on the web.

Hiding in Plain Sight on the Internet

Freezing CreditMy husband and I are searching for a house.  Like any diligent buyer, I searched the Internet for the address of the house we’re interested in.  (I did this just to make sure it had not been the scene of a murder or crime or meth bust.  Every perspective home buyer does this, right?)

While I didn’t turn up anything amiss with the home, I was shocked when I happened upon a site that touted itself as a reverse social security number look up.  The address I was searching was there, complete with the owner’s social security number.  In fact, every social security number that was listed had either the number holder’s full name or address.

Scary stuff!

You Can’t Control What Happens to Your Personal Information

The simple truth is, no matter how cautious you are about not sharing your social security number or making sure to shred all documents containing your personal information, you can’t control all aspects of that information.

If you’re living a normal life and using a credit card or debit card, you might be the victim of a company’s security breach (even though you did everything right to protect your identity).  Your own information could very well end up on the web even if you’re diligent about not having a web footprint.

Consider Freezing Your Credit

My friend recently had her identity stolen.  She found out fairly quickly–within 3 days, but by then the thief had already charged over $20,000.  She’s spent hours trying to clear her name while also caring for her 5 young children during the day.  I can’t imagine the stress she’s under right now.

Truth is, that could happen to any of us, especially when our personal information is so freely available on the web.

If you want to protect your name, identity, and credit score, the best way to do so is to freeze your credit.

First, to clear up a misconception, if you freeze your credit, the credit lines you already have open will not be affected.  You can use your credit as normal with no inconvenience.

However, freezing credit does have a few inconveniences.  If you want to open a new line of credit or even apply for a new apartment, for instance, you’ll need to thaw your credit.  Depending on the state you live in, this can cost anywhere from $2 to $10.  Initially freezing your credit also costs about $10 per credit bureau.

My husband and I have had our credit frozen since 2009 when we had our eBay account hacked and $1,000 was purchased over night.  I plan to keep our credit frozen for the rest of our lifetimes, thawing only when needed (like we did a few weeks ago to pre-qualify for a home loan), especially now that I know social security numbers and other personal information are so easy to find on the web.

Have you frozen your credit?  If not, would you consider doing so?

(Editors note: Freezing your credit is the best way to stop a lot of this stuff from happening.  It’s what many of the services like LifeLock (not recommended) really do. Alternatively, there are ID theft protection services like Credit Karma that you can use that will monitor your credit and credit score without the freeze, or in coordination with a freeze.)

5 Ways a Better Credit Score Leads to Better Finances

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BookkeepingEverybody knows that you want to have the best credit score you can.  Why?  Because the better your credit score, the better the rates you can get on your loans, of course!  But, did you know that there are other reasons to try and improve your credit score?  In fact, here’s five ways that having a better credit score can lead to better finances.

  1. More money.  This is the obvious one.  A better credit score leads to better rates on loans (see above), and better rates lead to less interest paid over the life of the loan.  And less interest paid leads to…  (wait for it) a  better bank balance!
  2. Better rentals.  It’s a sad fact that many landlords are doing credit checks on prospective tenants these days.  They’ve got assets to protect, so it’s a smart move for them, but the fact that there are so many landlords out there getting burned that it’s become necessary is sad.  But, having a good credit score can help make sure you don’t get turned down for that great apartment down by the beach!
  3. Quicker payoff.  This one goes really closely with the first point.  With those lower rates, and lessened interest also comes the ability to pay the loan off quicker.  And, of course, a quicker payoff means a much better financial situation.  Especially if you avoid any new loans afterward.
  4. Any loan you like.  If you must loan money, at least do it smartly.  With the current state of affairs, you can’t just walk in and get a loan that has a pulse as it’s only requirement.  In fact, many banks and credit unions are cutting way back on their sub-prime lending for anything.  (P.S. the term “sub-prime” doesn’t just apply to mortgage loans) If you have poor credit, it’s much more likely, today, that you’ll get turned down for a loan altogether.  Better credit means that if you really need a loan, you probably can have one.
  5. Less fees.  We all hate fees.  Well, all of us except the financial institutions.  A growing number of them are making a growing amount of their revenues from fees.  And many have moved to an account structure that is based off of risk.  And risk is determined by credit score.  A lower credit score could mean an account with higher fees, or with monthly fees that some accounts might not have, while a higher credit score might qualify you for a different account without those fees.

So, you see, having a good credit score can really send your finances in the right direction.  And, having a bad credit score can really send them into the dumps in a hurry too!  Unless you’re very dedicated to the extreme frugaler lifestyle, and never plan on really using money, it still pays to have a good credit score.  It doesn’t take much to build it, and you might be glad you did someday.

photo credit: o5com