Money Smart Kids
The Importance of Good Credit
By Janet Bodnar, Editor, Kiplinger's Personal Finance
June 13, 2002
I have always been open about money issues with my daughter and have explained about living within your means, avoiding impulse purchases, etc. Now she has come home from college with $2,500 in credit card debt! Should I insist she pay it off with her summer earnings, or let her continue to rack up high interest charges while she pays and plays?
Hoping your daughter learns a lesson by racking up high interest charges will take too long. Make your point sooner, and more strongly, by having her pay off the debt with her summer wages.
At the rate your daughter is going, she's going to dig herself a hole she'll never climb out of. Give her a leg up while she can still get a foothold. Young adults often don't realize the importance of preserving good credit until they try to make a major purchase, such as a car or house, or apply for a job (see the question below), and then it's too late.
A father I know who found himself in a similar situation came up with another solution. He paid off the credit card debt for his daughter and then made her pay him back, plus interest (at a lower rate than the credit card issuer would have charged). She paid him $35 a week -- in cash -- until the debt was covered.
Your daughter's experience illustrates yet again that college kids and credit cards can be a dangerous mix.
Employers can check your credit report
I recently received a job offer, and as part of the process the company wanted to view my credit report. How much weight do companies place on credit ratings?
Enough weight that you should be concerned about maintaining a good rating. Blemishes on your credit record can affect not only your ability to get a job but also to rent an apartment or buy a car.
Owing a credit card balance alone will not necessarily count against you. It's how you've handled that balance, and how much you owe, that counts. Paying your bill late, having a lot of debt and making multiple applications for credit can all lower your credit score.
Fair Isaac & Co., the company that compiles the most widely used credit scores, sets a top number of 850, but anything better than the mid 700s should be acceptable. You can buy your "Score Power" report for $12.95 at Fair Isaac's Web site.
