Swipe a card, and pay it later. America’s youngest generation, colloquially known to elder generations as the “millennials”, are the latest waves of people to enter the workforce. With a busier lifestyle ahead, many financial experts worry that younger generations of people have no idea how to use or to build credit.
Many experts have noted that younger people not only have different perceptions of credit, but also use it differently than previous generations. Being young is not the problem. The problem is a lack of awareness surrounding the credit building and reporting. Don’t miss out on the very best credit building advice for millennials.
Credit Building Advice for Millennials
Millennials are our youngest generation at the moment. The future will be very important for millennials, so start building your credit now. With good credit you save thousands of dollars over the course of your lifetime.
On the flip side, having a poor credit score can hinder your ability to get a mortgage, finance a car, or even get a job! Follow with Millionaire Mob to build your credit score and avoid a poor credit score.
We have a number of different recommended wealth management resources that will help you build excellent credit.
Why is building credit important?
If you have a credit score of 600 or below, you are considered a subprime candidate from financial institutions. If you are a subprime candidate, you are likely to be turned down by a vast majority of companies and institutions that can hand out loans or other financial products.
They turn you down because, as a subprime candidate, the institution will think that you have a record of not adhere to loan schedules and make payments.
As a result, you get rejected more frequently for credit cards and loans, have fewer choices and become subject to higher interest rates. The impact of a low credit score can also jeopardize your chances of leasing an apartment or even getting a job!
Poor Credit Score Impact to Personal Finance
A poor credit score can severaly impact not only your personal finances, but also your life. I would consider a poor credit score of 700 or below. In order to build credit, you need to open credit accounts early in your lifetime and show lenders that you are reliable with paying your debt on time.
Here are the main key points on how a poor credit score can impact your life:
- Can prohibit your ability to obtain a mortgage. A poor credit score will also lead to a higher interest rate on all of your loans. With long-term debt like a mortgage, this can result in a lot of money over time.
- A poor credit score will also limit your interest rate on a car loan if you want to purchase a car.
- In addition, you may not qualify for a student loan.
- Some companies pull credit reports when you are applying for a job. A poor credit score can impact your ability to obtain a job!
Take the necessary steps to avoid a poor credit score now. A good credit score will allow for you to have unbelievable financial flexibility over time.
What can you do to build up your credit?
What can you do to make sure credit doesn’t interfere with your life after college? The first thing to make sure that you do is to make payments on time. For example, if you have an apartment in school, make sure to meet the deadline of when you are expected to pay.
If you choose to delay your payments or cannot pay the rent, the owner can report you to a debt collector which can have drastic effects on your credit score.
Instead, by paying on time, your credit score stays stable and in some cases increases. By paying on time, you tell prospective companies that you are responsible, can meet deadlines and have the financial capability to pay on time.
At the same time, it’s important to be adventurous. Establishing a longer credit history by the time you need to relocate or make major purchases can be extremely helpful.
By having a diverse list of payments and credit history, institutions feel more comfortable with loaning you money or insuring you. History is also important because it reveals patterns about you.
For example, let’s say that you had to borrow some money over the past few years through a loan, each of them for one year at a set interest rate.
If you continue to pay back the money on time, a bank may conclude you are responsible for making payments and consequently judicious in your spending. Consequently, they see you as a mature young adult with a smart financial sense – and its reflected all through your credit score! Follow these tips on how to build a credit score by 200 points.
How to improve your credit rating
There may be situations where you have a credit card as a college student or young adult. If this is the case, consider moving normal purchases like gas or food on your credit and then pay it off at the end of each month. Many choose to leave their credit cards unused when you can manipulate the framework of credit cards to your advantage.
The disclaimer here is always to use the money that you can actually pay, and to keep your balance low if you cannot pay everything off at once. By doing so, you can show companies that you have the money to cover credit for your purchases and can do so responsibly.
There are also other options such as revolving or installment credit accounts which can illustrate to companies how you handle certain types of debt.
This becomes more relevant to younger generations as they get older, but getting a handle on financial decision making early can make a big impact in your life.
Do not be afraid to learn more on how to handle money – taking courses in money management can seem wasteful, but can teach you on how to set yourself up for a better future. As a young adult, the old adage from your parents about being responsible rings true in the financial sector.
The more ways you can show it, the more people will trust you. Consider getting a starter card like a coffee credit card to start building your credit.
Conclusion on Improving Your Credit Score and Avoid Having a Poor Credit Rating
Do not be complacent in your personal finances. I suggest signing up for a free credit report monitoring service as soon as possible to avoid a poor credit score. This will allow you to monitor your credit score over time and will show you the important factors in your credit rating. There is plenty of options for you to build your credit.
If there was one piece of advice that I wish I could have participated in, start early in improving your credit score and make it a focus to check every other month.
Perhaps you want a professional financial planner to evaluate your financial position. Here’s how to find the best financial planner for millennials.
Do not ignore the best credit building advice for millennials. If you need some methods to get out of debt from student loans and more, check out our favorite two methods. Subscribe to my newsletter below and I will send you a FREE copy of one of our eBooks!
What is your favorite credit building advice for millennials? Comment below. We’d love to hear from you!