Most parents of teenage kids know if you want to send your increasingly-expensive child to college you have to get your finances in order. While you don’t need to pay for schooling up front (which very few parents can) you do need to find a way to obtain the funds necessary (through loans) which you co-sign for your brilliant-baby. This funding depends on your current income as well as your credit. In today’s world the income factor is maybe 30% of the decision; credit is 70%.
In order to obtain these funds you have to show a decent FICO score (620) to a great score (700+) proving you are reliable in case your post-pubescent teen fails to obtain a job and pay his or her bills after college. A decent score will obtain a high interest rate loan (8%-12%) and a great score will obtain a medium to high interest rate loan (6% – 8%). Unfortunately, there seems to be no such creation of a low interest rate loan readily available for schooling.
Now, what happens if you have low scores? How do you tell your child that years ago (when you were laid off, got sick, divorced etc.) that you had trouble paying your bills (mortgage, auto, credit card etc.)? The result of a horrible and unpredictable situation means your child is now in a horrible and unpredictable situation.
Be pro-active. Even if your baby is literally a baby start tracking your scores and obtaining credit and financial advice. This can and will, again literally, save your child’s future.
Yet, pro-activity only goes so far. If there comes a point where your credit is shot there are ways to fix it quickly and correctly.
Quick fixes to keep in mind:
1) Piggybacking – Find a friend or family member with good credit; someone who has two credit cards that meet the following requirements: open for at least two years (older is better), limit of a minimum of $2,000 (the higher the limit the better), low balances (30% or less) and on time payment history. Ask this person to call their credit card company and put you on the card as an authorized user. (Your credit will in no way hurt or harm your friend’s credit; the only link between the two of you will be the authorized user account.) When the card comes in the mail – cut it up. You are NOT accessing or using this card or account. Your friend can also put a password onto the account so you have no way to tap the funds associated. Within thirty days of being added onto this card your credit will reflect the full card history. The older the card and the higher the limit the more your scores will increase. On average, being added to an account will lead to a 30 – 40 point boost. If you can be added to two credit accounts? You can see an increase of 60 – 80 points within thirty days.
2) Collections – Keep in mind it is NOT legal for debt collectors to report on a Massachusetts resident credit report. You can argue for the removal (or hire a professional to argue for you – such as Chaffin Credit Consulting!). If you are not a MA resident you can negotiate for the payoff of the account with the removal of the account. If you do a payoff shoot for 30%-50% of the full balance. Having an account noted as “less than full balance” does not hurt you as much as you think it would.
There are more “quick” fixes out there as well. Whether you need professional help or just quick tips and advice always reach out and make sure you are prepared and educated for your will-soon-be-college-grad’s-education.