What is a credit score? Most people would answer that this is how lenders see if you are able to receive a loan and at what interest rate. And that’s true. But really, it’s an algorithmic number telling a lender how likely a person is to default on a loan within the first 24 months. So, the better your payments on your credit received, the likelihood of your scores being strong is a good bet.
So, why are millennials’ credit ratings (those born between 1982-1996) near the bottom of other generations? There are a few reasons and, frankly it ‘most likely a mix of all.
According to TransUnion the scoring range for Vantage 3.0 are:
Very poor- 300-600
Poor- 601-660
Fair- 661-720
Good – 721-780
Excellent – 781-850
The average credit rating for millennials is standing at 658.
For many in this age group, they were hitting the age of their working career right as we had an economic collapse in 2008. So, it’s no coincidence that many in that age group found the thought of taking on debt a good strategy. But what may be other reasons.
- Student loan debt. As the price of Higher Education grows, the larger the student loan debt becomes. When the millennials come out of college with a degree in hand, most don’t get started in their careers with a six figure income. So, it makes perfect sense not to add to that debt with loans or credit cards.
- Many millennials don’t even consider credit cards as needed. They grew up with the benefit of having the availability of “tap to pay” applications right on their phones. Something that Generation X (myself included) had to be taught. The list is endless; Apple Pay, Google Pay, Pay Pal, Venmo, and on and on! These easy-to-use products make transactions fast and as simple as using a traditional MasterCard or Visa. Albeit not as safe when it comes to fraudulent transactions. But the point of it is the ease.
- Payday Loans– When the millennial finds themselves in a crunch, these payday loans are being utilized. Social media apps are bombarded with advertisements on these payday loan services. So, it’s just natural that these seem like logical choices when it comes to getting money fast. The downside??? The interest on these loans are usually doubled or quadrupled of the standard interest on credit cards (25 %).
So why is this an issue? Why even worry about their scores. As many of us know, as we grow older, we find ourselves needing a good credit rating. Eventually they may want to become homeowners. They will want to purchase new vehicles. There are incentives to a good credit score that goes beyond just purchases. Most major insurance companies take into account credit scores when deciding on the best premiums to offer. There are also many companies that use a credit score to make a decision if a candidate is right for the job.
This is why it’s important for millennials to start now, today, if they haven’t already, to start building a strong credit profile. There are many resources available to help those with low to no credit get the journey started. And it’s a journey. It doesn’t happen overnight. But here’s a good place to start. www.freecredithub.com.
As always, Credit Law Center is a great resource for questions or concerns about one’s credit report. If you think your profile needs help, give us a call at 1-800-994-3070.
