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My grandson is a senior in college. He has taken some student loans for which the financial resources exist (529 plan) to pay them in full upon graduation. My question is this:
From the perspective of building a strong credit history, should he pay the loans in full after the grace period, or should he make payments for a period of time, say a year or two, before paying them in full?
Note, that any money leftover in the 529 plan will be either transferred to a Roth IRA when feasible, or used for his brother’s education. He is also building a credit history by paying off his credit card balance in full each month.
Thank you.
You could also add him to an existing credit card even if he doesn’t physically have the card in in his possession. Make sure it is a card you use and that will also build his credit history. I personally abhor paying interest for anything, so if I can avoid it I can. As someone else mentioned a secured card will also help teach him to repay his debts on time.
If you add someone to a credit card with the goal of building his or her credit history, see whether the card company reports activity to the credit bureaus if the person is an authorized user — or only if he or she is a joint account holder.
Thanks for this advice, as I was wondering the same thing about my grandson’s use of his card on my account.
I would think a year or two of on time payments would be beneficial for building a good credit history (I would guess two would be better). I would decide how much your willing to spend (ie in interest paid) to buy the credit history.
Thanks Dave for the interesting perspective.
My understanding is that making timely payments on the loan will help build his credit score. Is the cost of interest worth the benefit to his credit score? Here are some other ways for a young person to establish themselves.
Thank you Dan.