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Ask Farnoosh: Strategies for Building Credit in Your 20s

Tre tweets: I'm 20 years old and searching for ways to build credit. Currently don't have credit... need pointers.
 
Hi Tre,
 
Establishing credit early on in life can help boost your overall credit profile down the road, though in recent years this has become more challenging for younger consumers to do. The most common way to establish credit is to open up a credit card, but part of the new order established by the Credit CARD Act of 2009 says banks and credit card companies can no longer issue credit to those under the age of 21, unless they have a qualified cosigner above the age of 21 with a job (e.g., a parent) or if they can prove that they, themselves, have enough income to pay off future balances on the card.
 
I am a proponent of the CARD Act, since it also bans predatory credit card marketers from college campuses, but if you really want to get a head start for the right reasons (not so you can, say, buy things you can’t readily afford), here are some alternative ways to establish credit.
 
For one, you can become an authorized user on a responsible parent’s credit card. You get a card with your name and have the same access to the credit line as your parent. But responsible is the operative word. “You get the immediate history of the account on your credit reports and if it’s old and the balance is low relative to the limit, then it’s very helpful for your credit scores,” says John Ulzheimer, president of consumer education at SmartCredit. But if the balance is high or your parent fails to pay on time, that can work against your credit profile.
 
Another strategy is opening up a secured credit card at a local bank, which is sort of like a credit card with training wheels. How it works: You deposit a relatively small amount into the card’s account, say $500, which becomes your credit limit. You can use the card like a regular credit card. If you pay your balance off every month in full for the next 12 months, you can usually qualify for a real credit card. “Be sure you ask the card issuer if they report to all three of the credit bureaus,” says Ulzheimer. “If they do not, then you won't get the benefit of opening the account.”

Harry writes: I retired a few years ago to move in and care for my ailing father, so we are both retired. We've gotten some calls over the last few years offering solar panels and other solar installations, but it seems you need earned income to benefit from the tax breaks available. All our income comes from Social Security, dividends and capital gains, and other such unearned income. Is there no way for retired people to benefit from these solar programs?
 
In short, yes. Retirees can benefit from solar programs, even if their income isn’t tied to a “job.” Specifically, you can take advantage of the Residential Renewable Energy Tax Credit, which covers up to 30% of the cost of qualified expenditures like solar installations. The credit has no maximum and can be applied against any income, earned or ordinary. If your tax bill is zero, the credit can be carried forward into following tax years for as long as the credit is in effect, which now is until 2016, according to Norman LeBlanc, a certified public accountant with Kahn, Litwin, Renza & Co. Some states offer green incentives, often grants, where you can get a rebate on the purchase of equipment, LeBlanc says.

Keep in mind that you calculate your 30% federal tax credit after any state or utility rebates.
 
Got a question for Farnoosh? You can reach her on Twitter @Farnoosh or email her at farnooshfinfit@yahoo.com.
 

 

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