Supporting home ownership for the next generation

Supporting home ownership for the next generation

Supporting home ownership for the next generation

Last week, Mark Wells of Preferred Financial Services discussed ways to assist new home buyers through financial gifts. Today’s column addresses other means of preparing them for home-ownership. This equally important, non-financial assistance can make all the difference in the next generation being able to purchase a home.

What is the most important thing I can tell my children about preparing for home ownership?  It’s hard to give you a single item, but if I had to choose, it would be to help them understand the importance of managing debt and using credit properly, and how to build their credit scores in preparation for home ownership.

So what do I tell them?  They need enough credit, but not too much. Ideally, they should have at least one installment account (a loan with a fixed monthly payment) that has more than 12 months’ payment history, and they should also have two revolving (credit card) accounts, that are used properly each month.

What is the proper use of revolving debt?  The best way is to use the cards each month, without going into debt at all. To do this, they should charge a small item or two each month for things they already have the money in hand to buy, then pay off the credit-card balance in full each month.

That might prove to be hard to do. Even I have trouble doing that all the time. If they can make this a lifestyle practice, it will serve them well all their lives. But there are times where debt is necessary, and where a balance might need be carried over month to month for a while. In those cases, it is imperative that they make more than the minimum required payment on the card each month, and that they not let the overall balance on the card rise month over month. The new credit-scoring system penalizes minimum payments (even if made on time) and penalizes balances that grow over a 6-12 month period.

Any other advice about credit?  It seems obvious, but children need to be reminded that ALL payments must be made on time, every month, without exception. When there is not much depth on a credit report due to the borrower being young, even one missed payment on one small account can penalize them disproportionately. Any payment received by a creditor 30 days or more past the due date is reported as a derogatory item on their credit report, and there is no way to undo the damage.

Next week, I will cover other important non-financial help you can give to your children and grandchildren.

I welcome questions and comments, and can be reached daily at (864)-235-9596, or by email at

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