A recent "State
of Credit survey" by Experian shows that millennials have an average
credit score of 628. That means that this generation has the lowest average
credit score of any other age group in the country and stands at more than 50
points below the national average.
If you take that figure at its
face value, you might incorrectly assume that millennials are generally
financially irresponsible, which is not the case. There is data to
show that more millennials are actually
buying homes and making some very responsible financial decisions as opposed to
the typical norm of "living in the here and now." This same data shows that:
This,
however, does not mean that millennials do not have some money or debt
management issues. But as more and more millennials look to further their
studies and buy their dream homes, the question of raising their credit score
always comes up. If the generation born after 1980 is going to become a major player in the housing market, then it is important that they find ways through which to
raise that credit score from an average of 628 to something more presentable
and desirable.
So, what can you do as a millennial
to build your credit score and credit history?
As a millennial looking to
build up your credit score, there is one thing that you simply must do before you even think of doing anything else on this
list: get your credit
report.
Without a credit report, you
will not know which areas are hurting and which ones are helping your credit
score. You are entitled to one free credit report from any one of the three
major credit reporting companies – Experian, Equifax or TransUnion. This credit
report gives you a better understanding of your spending habits and shows you
where you could have gone wrong. It also highlights any mistakes that could be
ruining your overall credit score.
There might be some errors
that are simple enough to correct but unless you take that upon yourself and
call the agencies as well as the reporting companies, then those errors will
persist. As long as those errors stay on
your credit report, they will just keep
ruining that score.
Once you have your credit
report and know which areas need work (credit card bills, student loans, and so
on), you can begin the credit
score building process. Here are a few things you can try when
aiming for a good credit score:
There are things known as
"active debts." This means that they are debts that are being serviced. The only reason people report
you to credit rating bureaus is because you
let debt payment windows lapse for more than a period of three months; meaning
your bills are way past due. However, if you are constantly paying down your debt or are in constant communication
with the people you owe, there shouldn't be any reason why your account should be flagged as inactive.
The best thing you can do is
to ensure that you make the payments on time. Late payments have a seriously
negative impact on your credit score. To ensure that you never miss a payment,
no matter how small, think about setting up automatic payments through your
online banking. This goes to your water
bills, gas bills, credit card bill, student loans, and everything else that
needs to be paid down each month or on a regular basis.
Some people think that the
best way to maintain a good credit score is to avoid debt altogether; however, this kind of thinking is
flawed. Your credit score is essentially
a number that shows lenders how reliable you are when it comes to paying back
debt which cannot happen if you do not have any debt
to reliably pay back. If you are credit
card averse or feel as if you do not have enough financial discipline, then look
into getting yourself a secured
credit card instead.
This kind of credit card
requires you to deposit money against the card's limit. Say for example you get
a credit card that has a $1,000 limit; a secured credit card will need you to
deposit $1,000 onto the card before you start using it. As you use it, the
available balance will reduce. The best part is that this card requires monthly
payments that need to be made on time and
does not allow you to use more than you have on the card. It's very much a debit card, but with some serious credit score-raising
capabilities.
You will begin to see your
score rise if you consistently use this card and pay it down on time each
month. This way, you get a better credit score while maintaining some level of
financial discipline.
Every time you apply for a
loan, your credit score takes a slight hit. This
is mostly because lenders begin to think
that you are desperate for money and as such must not be very good with it.
However, this does not mean that you shouldn't apply for loans or that you
shouldn’t shop about. Some loans give you a 30-day grace period; a
period within which you can apply for
several similar loans through different lenders. These include loans such as:
These are typically loans that
involve a lot of shopping around, and
since everyone wants to find the best rates on the market, you are allowed to
look at several lenders without consequence. Take advantage of that 30-day period and apply for as many as you
can without necessarily seeming desperate. Who knows, you just might get better deals.
Do not shy away from debt or
revolving loans; make sure your credit report has no errors and make your
payments on time. Raising your credit score as a millennial is that simple.
