Under-30s Are Unwittingly Ruining Their Credit, But They Can Fix It
The bad news is that the under-30 generation is making blunders that are decimating their credit ratings, according to yet another study on millennial spending habits and financial literacy (or lack thereof). This doesn’t bode well for the erring millennials, as one’s credit score can, for better or for worse, affect qualifying for a mortgage, a loan with a lower interest rate, a good job or even a decent rental flat. The good news is that these mistakes can be fixed, or avoided altogether.
The “Debt Set”: a generation in denial?
In early August 2016 My Credit Monitor, an online credit score provider, released the results of their survey of 1,000 people under the age of 30. The study identified a subset of the population that they’ve labeled The Debt Set, the under-30s who are unwittingly making common mistakes that adversely affect their credit rating. If you’re not sure what these mistakes are you can find a link to their credit score quiz in the article linked to in the previous sentence. But here’s a spoiler: the two biggest mistakes uncovered by the research were maxing out one’s credit card, and spreading a purchase out over several cards.
The research also revealed that 75 percent of the respondents had no idea what their credit score was before they applied for their first credit card. Yet ignorance of their credit scores didn’t stop nearly one-fifth of the under-30s from using a credit card or loan to pay for a holiday, which can cost hundreds of pounds, including interest. There’s a word for that: denial.
For many, the state of denial didn’t last, as more than 20 percent had to move back in with their parents to cut expenses when they had problems paying back their debts. Other research by My Credit Monitor has found that nearly 18 percent of over-30s are still paying back money they spent in their teens and 20s.
Clearly something is wrong.
Given all of the above it isn’t surprising that 84 percent of 18-to-65-year-olds think that schools should have personal finance courses. Indeed financial literacy courses have been introduced into UK curricula, but there are still issues with consistency and standardisation. Better financial education in the schools is certainly one part of the solution, but education is an ongoing process. It isn’t too late for people who have been out of school for many years to improve their own financial literacy. There are adult education classes, online resources and a host of apps to help people manage their money.
For under-30s – or anyone else – wishing to avoid or rectify credit mistakes, there are several things you can do. First off, make sure you’re registered to vote. Do your homework before applying for credit; don’t succumb to the temptation of applying for every offer you’re sent. And never assume that small debts are less of a problem than large ones; if you demonstrate that you can’t handle even miniscule amounts of credit you’ll still be damaging your rating. Also keep in mind that credit cards and loans aren’t the only pieces of the puzzle; energy, mobile phone and broadband providers can also contribute to your credit report.
Knowledge is power
Perhaps one of the most important things you can do to preserve and improve your credit is to check your credit report on an ongoing basis. This is one case where what you don’t know can hurt you. In order to make sure your file is in good shape and doesn’t contain inaccurate information, you need to check it, and check often. At the very minimum, scrutinise all of your reports once a year; twice a year or quarterly is even better. You can get a standard statutory report for just £2, or you can even check your credit reports for free.
In the UK we have three major credit reporting agencies – Callcredit, Equifax and Experian – the links to which can be found on the page linked to above. They each maintain a file on everyone who has credit, and although they do their best to keep the information accurate and up to date, they can and do make errors. Some of these errors can adversely affect your credit report, possibly causing you to be declined for a loan or employment.
You’ll want to make sure your addresses are current and reported accurately. If you are divorced or separated, make sure you are separated in the credit reporting agencies’ reports too. Keep an eye out for old and unused credit cards or store cards, which can hurt your chances of being approved for new credit. Look for any other inaccurate information too, and dispute it. And whenever you are rejected for credit, be sure to check all of your files to see what the reason may have been. If it was due to an inaccuracy, you might be able to reapply and get approved after the mistake is corrected.
Make it a priority to improve your credit rating
Even if you have a fairly good credit rating, it can always be worked on and improved, and if you’re smart you’ll make that a priority. The Save the Student site has several tips on how to improve your rating, with perhaps one of the most important being painfully obvious: Pay all your bills on time. As indicated above, this includes utility bills, mobile phone and any form of loan repayments except for student loans – and even rent.
In fact it’s now possible, as of March 2016, to arrange for your rent payments to be shown in your credit report. This is a great option if you’re good at paying your landlord in time, and are looking for ways to enhance your credit score. In any case keeping your payment or repayment commitments is one of the best things you can do to earn and maintain good credit.
Just because you’re young, that doesn’t mean you have to be a naïve member of “Generation Debt”. Even if you’ve already made some big mistakes, you can begin fixing them now, and the sooner you start the better. The power is in your hands.
This is a submitted( sponsored) entry. This is good info for our UK viewers as well as our US viewers. This article provides great advice but is not to used in place of an advisor.