Q: My 30-year-old son just finished graduate school with no loans. He has a new job that pays $60,000 a year. The problem: Because he hasn't established credit, he can't get a credit card or a car loan, even though he has $10,000 in savings and more than enough income to cover his bills each month. If I cosign a car loan, will that help him? I'm at a loss as to how he can start building his credit.
A: Mom, I can hear your frustration. It is stupefying that someone with a great income and no debt can't obtain a credit card or a loan. I bet that one factor weighing against his loan application is that he has yet to establish a FICO credit score, so while his income is enough to qualify, lenders won't make a deal. I am never a big fan of cosigning a loan, because it means you are 100 percent liable for making good on the amount borrowed. And even though your son sounds like a very stable guy, I stick by my advice: Do not cosign a loan for him. This is not about your son being a flake or freeloader. What if he is laid off? Or is injured in an accident?
But you can still help. If your FICO credit score is at least 740, I would consider adding your son to your credit card as an authorized user. This allows him to piggyback on your score, and it will help him build a solid credit report that will eventually make it possible for him to qualify for a car loan on his own.
I have to tell you, your son's situation is one of the big reasons I've worked hard to bring out my new Approved Prepaid MasterCard debit card. I have become so frustrated hearing from people who can't get credit cards or who are struggling to navigate high fees. Debit cards are a great alternative to credit cards—and a great way to avoid the temptation to run up a high balance.
Prepaid debit cards get around the problem of maintaining a hefty checking account balance, but some charge fees that can add up to $15 or more a month, and currently no prepaid debit cards report to one of the three main credit bureaus that lenders rely on for FICO credit scores. That's not much of a solution.
This is why I am so proud of the new Approved card, and I honestly think it will be a game changer. For the first time in history, transactions made through a prepaid debit card will be shared with TransUnion, a major credit bureau. That information won't yet affect FICO scores, but the hope is that collecting data and insight on how people use debit cards could eventually impact credit reports.
Suze Orman's new book is The Money Class: Learn to Create Your New American Dream (Spiegel & Grau). To ask Suze a question, go to oprah.com/omagazine_talk.
More Advice from Suze
From the February 2012 issue of O, The Oprah Magazine