Q: I'm having a hard time getting my son to understand the importance of a good credit rating. He lives at home, works full time but struggles to keep on top of his bills.
A: Your son, like a lot of young people today, has yet to discover the true value of a good credit score.
Ask him to tell you what it costs to have a poor credit score in comparison with a good one. In all likelihood he'll get a puzzled look on his face.
The answer is that a good credit rating doesn't cost you anything. All that is required is that you use credit carefully, pay your bills on time and set money aside to manage unforeseen emergencies. A sufficient payment history that reflects positive credit behaviour is the final necessary ingredient.
So what's the big deal? The big deal is the price your son will pay for not having a good credit score. A poor credit score could cost your son his chance of getting his dream job, as many employers check credit reports before making a job offer, or a safe place to rent, as many landlords won't rent to people with poor credit.
A credit report with a couple of small collection items and a record of slow payments might add two additional percentage points on a mortgage application. Using a mortgage amount of $250,000 (three-year term, 25-year amortization) the extra two percentage points will amount to almost $15,000 in additional interest payments!
If your son is still not convinced, ask him to do his own research and find out for himself. Afterwards, offer to help him get his finances on track or steer him toward someone you trust. Corrective steps and time will help your son build an excellent credit score.
The best things in life are free and this certainly applies to having a good credit rating, especially when you consider the painfully expensive alternative.