How can my nephew start to build a credit history?


Q. I have a nephew who has never been good at managing money. He pays for everything in cash. Now he realizes that it’s important to establish a credit rating. I have heard of something where you can apply for a credit card and deposit an amount of money equal to the credit limit on the card. You use the card to make purchases and you pay the bill in accordance with the payment terms and, above all, on time. After a period of time, you can establish a credit rating. Is this correct?
— Auntie

A. It is indeed correct.

We’re glad that your nephew sees that it is important to establish good credit and be responsible with payments.

The kind of card you’re talking about is called a secured credit card, said Karra Kingston, a bankruptcy attorney in Union City.

She said a secured credit card can help people who are working to establish credit for the first time.

“A secured credit is different from a regular credit card because they require that the user put down a security deposit,” she said. “Generally, the secured cards require that the lender put down the amount of credit that they wish to use.”

For example, if someone puts down a deposit of $600, they would be extended a line of credit for $600.

“As long as the user shows on time payments and continues to be responsible with making the payments and spending, this will increase their credit score,” she said.

To choose the right card it is important to look at the credit limits and security deposit requirements. Make sure to be on the lookout for high interest rates and annual fees, she said.

Another way he can improve his credit is to become an authorized user on someone else’s card.

“As an authorized user, the person can charge on the credit card but isn’t responsible for the payments,” Kingston said. “When someone is added as an authorized user, the credit card history goes on to their account which in turn, can help them build their own credit.”

Keep in mind that this will only help if the owner of the card makes on time monthly payments, she warned.

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This story was originally published on Dec. 24, 2021. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.