I have been selling Los Angeles homes for more than two decades and am at a point in my career where I am now helping my client’s children purchase their first homes. Many of these kids are getting some type of down payment assistance from their parents. Some parents also co-sign the loan (helping their adult child qualify for their mortgage).
Your child’s credit rating is important because those with higher FICO scores obtain lower interest rates. Likely your child will be obtaining an auto loan before purchasing a home, and their credit score will determine the interest rate offered. FICO scores are calculated from five groups obtained from your credit history.
Payment history (35%)
Credit Utilization (30%) total debt you have versus how much credit is available.
As soon as your adult child has a job, they should begin to establish their credit. These are the top 3 ways you can help your adult child build their credit:
Length of credit history (15%)
As soon as your adult children have jobs, help them establish their credit. Start with low limits, perhaps just a gas card. When they buy a car, their name should be on the loan (even if just as a co-signer).
Credit mix in use (10%) Consumers with no credit cards are viewed as a higher risk.
Slowly help your adult children establish their credit with various accounts (credit cards, auto loans, etc.)
New credit (10%)
Consumers with a short credit history should not open multiple accounts in a short period of time. After your child opens their first account, have them open a second account in six months.
Remind your child to review their credit annually by obtaining a free credit report here.
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