How a young adult with no credit history boosted her credit score

WASHINGTON » While I generally discourage young adults from using credit, at some point they do need to prove they can manage debt.

The widely used FICO credit score, which is derived from information in your credit file, ranges from a low of 300 to a high of 850. Your score — along with other financial factors — directly affects how much interest you pay for the money you borrow. Your score also influences your insurance rates as well as your ability to get an apartment or even a job.

But how do you show a lender that you can manage debt well if, to get credit, you have to have a positive credit history? That’s what one reader wanted to know.

“My child graduated college, moved home, got a good job, opened a bank account at a small local bank with direct deposit, and then applied for a credit card at a large national bank,” the reader wrote during one of my recent online discussions. “The bank turned [my child] down, however, saying, ‘the credit reporting agency serving your area has reported no credit history for you.’ What does a new graduate need to do to establish a minimal history sufficient to get a credit card?”

It might surprise you, but it doesn’t take very long to establish good credit. So, there’s no need to panic that your teen or young adult child doesn’t yet have good credit.

Why does a high school student need a credit card? Will she

be renting an apartment or getting a car loan in the next few years?

If you plan it right, you can help your child build a good credit profile just in time to qualify for a loan or lease starting out as a young adult without needing a co-signer.

As our eldest was getting close to graduating from college, we made her an authorized user on our credit card. This tactic is called “piggybacking.”

The point is to let the authorized user benefit from the positive credit

history of the primary cardholder. However, you should be aware that the person piggybacking on your good name isn’t liable for paying any of the charges he or she makes on the card. So be extremely careful about using this method.

After about a year of being an authorized user, we had our daughter apply for a general-purpose credit card.

She was turned down because her income was too low. She’s working at an internship with a small monthly stipend. But we just wanted her to test if our credit history alone was enough to get her approved.

Having been rejected, she then applied for a secured credit card, which is backed by money deposited into a savings account. For example, if the required deposit is $200, that becomes your credit limit.

If the young adult already has a banking or credit union account, start the search for a secured card at that institution. Bankrate.com regularly profiles the top secured card offers. On its list of best secured cards for 2019 are several credit cards with no annual fees, and most only require a deposit of $200.

Shop around to avoid cards with high fees, and

make sure the issuer is reporting to all three credit bureaus — Experian, Equifax and TransUnion. Don’t worry too much about the interest rate, because the balance should be paid off every month.

Our daughter was approved for a secured card from her credit union with a $250 limit.

The next two steps are crucial: We told her to only make small-dollar purchases and to pay the entire balance off before the due date every month.

The two biggest factors to getting and keeping a good credit score are paying your bills on time and keeping your debts low or paying them off

completely. Analysis has shown that consumers with FICO scores over 800 use an average of just 7% of their available credit.

Our daughter got her secured card in May and made a $27.95 purchase for gas. She used the card a second time in July to charge $15 for the Metro.

“I paid off the balance as soon as the charge posted,” she said.

With no credit history of her own other than the boost from being an authorized user when she applied for the secured card, her credit score was 698, which is pretty good.

After just two charges and three months, her credit score increased to

737. So, she stopped using credit.

When she last checked, her score had jumped to 743.

Mission accomplished. She has established that she can handle debt.

Readers can write to Michelle Singletary c/o The Washington Post, 1301 K St., N.W., Washington, D.C. 20071. Her email address is michelle.singletary@ washpost.com. Follow her on Twitter (@SingletaryM) or Facebook (www.facebook. com/MichelleSingletary). Comments and questions are welcome, but due to the volume of mail, personal responses may not be possible.