I remember when I was in high school and Friday night rolled around.  As most 17-year-olds, I was as broke as an old clock.  And, WOW, what $20 could buy in 1985.  So like most young kids do, I asked Banco Padres (the parent's bank) for $20 on a regular basis.  And it wasn't a loan for $20, because if it was then I defaulted on every single one of them.

So when is it time to stop asking family and friends for money?  It's my opinion that you should never, ever ask anyone other than a bank or some other form of official lender for money, ever.  Here's why...

1. Most "loans" are paid back under the terms of a promissory note.  Borrowing dough from mom and dad is not.  It's paid back under some loose assumption of terms, which often leads to misunderstandings and hurt feelings.  And nothing makes Thanksgiving dinner more uncomfortable than the elephant in the room, which is "the guy carving the turkey owes me $10,000."  


2. Co-signing is a temptation, which is fraught with peril.  Co-signing for a loan or anything for that matter is the financial equivalent of getting married.  You are officially connected and getting disconnected, which might seem really attractive, is next to impossible.  Lenders love two liable parties instead of just one.


3. "He who gets gypped has the memory of an elephant."  Notwithstanding the fact that I've now mentioned elephants twice in this article, the quote rings true.  I can't remember who gave me what at my wedding, but I sure can remember the folks who gave us nothing.  It's human tendency to remember these things and nothing is worse than the constant memory of getting ripped off, by a loved one.


4. Save the lending to the lenders.  Lenders are expected to be cut throats.  They'll report you to the credit bureaus, hire collectors to track you down, and might even sue you for delinquencies.  Do you really want to put your loved ones in that position?

Here's my suggestion, if you are seriously thinking of letting someone borrow money, just let them have it.  That way there's no expectation of getting paid back so there are no hurt feelings when the checks don't roll in.  But even then I'd think twice.  You're enabling irresponsibility by letting someone borrow or have money, plain and simple.  True example, a buddy of mine's father in-law borrowed $100,000 from my buddy's father.  He did this under the guise of saving his home and business.  Of course after he renewed his country club membership with a sizable chunk of the money it became quite obvious that he had no intention of handling the money as he had represented.

Let the banks be banks.  You be a friend or relative...and neither the two shall (or should) meet.

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.

Now that you're about to head off to college for the first time, or back again, it's important to keep in mind the role credit plays in your college years. And since "Credit 101" isn't likely a required course in your college curriculum, you could use a credit primer.

1. The kids starting this Fall will be the first vintage of college students who can't get a credit card on their own because of the CARD Act. They'll either need a job or a co-signer. Co-signing is a bad idea because of the permanent liability they'll have for the card usage. It's best to have a parent add a child as an authorized user on one of their cards if they need plastic on campus.

2. For upperclassmen headed back to school, it's time to start thinking about what it takes to get a job after graduation. Keep in mind that the job market is bad right now, so having good credit is important. WHY? Because employers can review credit reports as part of pre-employment screening. A new graduate doesn't want to lose out on a job because of something silly on their credit reports, like an unpaid utility bill or collections because of bad checks. It's also why #3 below is important to start thinking about...

3. Card options. College students have many options as to what type of card(s) they can use: debit/check cards, credit cards, charge cards, retail cards, and pre-paid cards. All of these serve that same function to a great extent (giving you the ability to buy stuff without cash). Keep in mind that only retail cards, charge cards and credit cards will show up on your credit reports. That means if you only use debit cards or prepaid cards you won't have a credit report when you graduate, which could make it more expensive when you do start applying for loans in your early 20s. Think about establishing credit while you're in school so you can get a leg up.

4. There's a penalty for messing up. If you do poorly on a test you can make up for it on the next test. Messing up with your credit means 7 years of punishment. Negative items like collections, missed payments on credit cards, and defaulted utility obligations will remain on your credit reports for 7 years -- long after you've graduated. Don't mess up!!

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.

I checked my credit report recently and it appears I was issued my very first card in 1999. I was a full 19 years old, a sophomore at Penn State and had no immediate need for the initial $4,000 credit limit. But as I recall, signing up for the Visa card on campus won me a lovely pair of Nittany Lion shot glasses – much cooler than the oversized tee-shirts another bank was offering down the street.

For better or for worse, those days are no longer. The Credit CARD Act of 2009 prohibits banks from giving away free merchandise to students on and around college campuses. And perhaps the biggest whammy to banks: they can no longer issue credit cards to those under the age of 21, unless the applicant has a qualified cosigner (usually a parent) or proof of sufficient income.

While these new rules are designed to help protect young adults, as with all well-intentioned Acts, there’s a downside, too; starting out will be harder because establishing a first credit line is now more difficult. Why? For one, according to FICO, 15% of your score is equal to the length of your credit history, so starting out early is important. Moreover, new cards will look at how well you do with old cards, and that goes to payment history and debt usage, which combined make up 65% of your score.

With the new age limitations, how can a responsible young adult circumvent the new rules and establish some credit history before age 21 in order to get into the rhythm of good financial behavior and add some length to their credit history? Here’s some advice:

Get a Job. The bill says a young adult’s application must indicate “an independent means of repaying any obligation arising from the proposed extension of credit in connection with the account." It’s no guarantee that having a job will qualify you, but it can certainly boost your chances.

Pay Down an Installment Loan. Unlike credit cards, an installment loan, like a student or car loan, is to be repaid in periodic installments. Paying these debts off on time is an additional way to boost your credit profile and score.

Get a Secured Card. A secured card offers an alternative way to establish credit history. An issuing bank (I recommend a credit union) offers you a credit line usually equal to a sum you deposit with the bank, starting at around $200-$300. Like a regular credit card, you’re responsible for paying back whatever you use (plus interest). Look for a card with low or no annual fees and make sure the issuer reports your activity to all three major credit-reporting agencies.

Join Mom & Dad’s Card. If your parents regularly pay off their bills on time, see if you can become an authorized user on their credit card account. The upside is that you can get credit for their timely and consistent payment activity. The downside is that if your mom or dad falls behind on payments or defaults, you’ll also look like a credit deadbeat.

Farnoosh Torabi – Credit.com Personal Finance Contributor, nationally recognized author, expert and television host. Her first book, You're So Money, is an acclaimed tell-all for young adults searching for financial independence. Her new book Psych Yourself Rich, gives readers the mindset and discipline to build their financial life.