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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 126963  
Subject: Re: College Student's Credit Rating Date: 1/23/2014 1:00 PM
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Hi IP,

In terms of credit rating, does it make sense for him to carry an occasional small balance? Would that improve his credit score, or does paying it off in full help the most?

2gifts said;
Tell him to continue to pay it off in full every month. It is his responsible behavior that will affect his credit card the most.

A. Carrying a balance on revolving credit doesn't positively effect credit scores, paying it off each month is as good as it gets,

B. 'Responsible behaviour' is, unfortunately, not related to credit scores/rating. Avoiding unecessary credit, and keeping your name and records out of the system entirely would be far more responsible... but that would work against you (and your son.)

If he wants to be maximally creditable, he should build the basic credit profile, as follows;
1. 3 reporting revolving accounts, active (meaning used no less than each 60 day period,) but paid each cycle (no balance carried.) If you can add him to 2-3 of your own long-established accounts in-good-standing, the time history will work in his favor... else, his credit will only strengthen relative to the passing of time of his own sole accounts.
2. 2 reporting installment accounts (car, furniture, equipment/computer, etc.) This is a lesser factor than revolving, but not insignificant. Again "responsibility" would say to avoid this entirely.... but if the best credit rating is desired, it needs to be managed. Taking advantage of 'zero interest' installment loans (and making sure not to get bitten by the cascading deferred interest if you are even 1 day late after the teaser deal,) is one way to take advantage of this.
3. A mortgage. Granted, for your son's intents this is the chicken before the egg (or vice versa?) But at some point a housing installment debt will have a rapidly strengthening effect to his credit strength.

Dave Donhoff
Leverage Planner
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