My son is a tech worker in his 30s and has never taken out a loan or had a credit card. He has a very good tech salary and a high net worth, but no credit score according to Credit Karma. He’s hoping to buy a house in 12-18 months and although he can make a large down payment, he’ll still probably need a mortgage.
What is his best option for establishing credit? Should he get a credit card now, or will he quality for a mortgage without a credit score? I can certainly add him as an authorized user to my card(s) if that would help but it seems silly that he wouldn’t qualify given his income and assets.
His credit score will factor into a mortgage decision. He should apply for at least 2 credit cards and would benefit by becoming an authorized user on your card(s)s since the additional card(s) would increase his monthly credit limit. He and you should pay the monthly credit card balances before the billing dates to keep his utilization rate as close to zero a feasible. Obviously there is a need to avoid late payments.
He should do the credit card applications immediately. I have seen different time intervals but it may be best to have a 12 month interval between applying for a credit card and obtaining a mortgage. Additionally there are some other options that he can look at that may slightly help his credit score including Experian boost, turboTenant rent reporting, and ultraFICO.
Do you have any suggestions on where he should apply? I imagine being declined would have a negative effect. He could certainly do a secured card if necessary, but ideally he’d just get a normal card of some sort. Are there any cards that would look at his income and assets rather than his credit history? He banks at Wells Fargo (I know ) but he could join a credit union, he’s eligible for several.
Thanks for the suggestions. I’ll probably add him to my two highest limit cards. I pay in full and have a pretty low utilization in general, but I’ll make a point of paying early during this period. I don’t believe his landlord reports to any credit bureau.
I know Apple Card has a pre-qualify check that doesn’t do a hard pull. I’ll suggest he try that one.
Unless your son wants to be an income source for the credit bureaus or be of value to hackers, who will be grateful for his information being readily available, your son could begin investigating lenders that will perform manual underwriting and forego the credit cards unless you or he are set on the idea.
If you’re set on credit cards, Credit Karma, Bankrate, or Nerdwallet can help locate potential cards. Once/if approved, put a handful of monthly bills on auto pay towards the card. Limit the usage under 30% of the available credit line for 6m, then check the card to see if they offer a no hassle credit line increase automated service. If approved, again adjust what expenses, utilities, or other would stay below the 30% available credit limit IOT again reinforce his creditworthiness.
My understanding is that manual underwriting has higher rates and potentially higher closing costs.
He’ll have a credit report as soon as he takes out a mortgage anyways, so I’m not sure I see much point in trying to avoid it for a year or so. I do understand what you are saying though, there are risks. I’ll definitely tell him to freeze his credit as soon as he actually has a history to freeze.
Income is a factor that is looked at but not your net worth. Clark likes the Petal 2 which is different from a traditional secured card. The Petal 2 card assesses an individuals spending and saving and may want to check his bank account.
Credit unions (and small banks) offer lower interest on credit cards than large banks. Your son could check with local credit union, explain his situation and inquire about moving his bank account to the credit union and see what type of card they might offer.
If your choice is ultimately a credit card, I would go to a credit union and investigate.
Do go over the credit card member agreement if you can prior to approval.*
I finally read mine from a big bank (after getting approved) and there’s 1 thing in the credit card agreement that I found truly unsettling. I’m not going to go over that here.
Go to a local credit union. Flop down that large amount of cash he was going to make the down payment with and open an account. Do a 80% loan.
Or ask a mortgage broker for a private lender loan. I’ve done a 50% loan with no credit check. I had good references to vouch for me.
He signed up for Experian Boost which apparently looks at bill payment history in your checking account. That immediately gave him a score in the upper 660s. I added him to my oldest card (I’m not sure if the age of my credit will help him, but it’s also one of my highest limit cards that I use least so typically has < 1% utilization)). Would adding him to another help? I’m guessing it will take a billing cycle or two before these show up on his report.
One question I had was whether adding him to Chase for example will make it easier for him to get a Chase card in the future.
Probably the opposite actually. I’ve had a Chase card for years, and when I applied for their United Airlines card a couple of months ago, they lowered the credit limit on my existing card by the amount of the credit line of the new card.
I do not think that adding a second card now will help his credit score. Thirty percent of the credit score comes from utilization rate and you have an excellent utilization rate of <1%. Fifteen percent of a FICO credit score is based on the age of the credit and you have already added him to your oldest card.
After he has obtained his mortgage, he will have one newer credit account so the average age of his accounts will be lower.
) but he could join a credit union, he’s eligible for several.