Millennial Credit Scores: How the younger generation can manage their cash

Millennial Credit Scores: How the younger generation can manage their cash

Research by Experian shows that around half of millennials believe they’re being held back by their credit score, the mysterious rating used to find o

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Research by Experian shows that around half of millennials believe they’re being held back by their credit score, the mysterious rating used to find out how reliable someone is at paying back their loans. Credit checks, which are tracked by independent companies like Experian and Equifax, are performed by lenders to determine a borrower’s trustworthiness. The score fluctuates depending on how well an individual has managed their ongoing financial payments, such as mobile phone bills, credit cards, and short-term loans.

If a person misses a payment, this will impact their credit score, potentially affecting their ability to borrow in the future, and impeding their ability to apply for other basic loans. As such, it is understandable why younger borrowers with poor credit scores feel like they’re being restricted. Lenders will often note that there is no overnight way to improve your credit score, but, despite Experian’s findings, there are many things millennials can do overtime to build up their rating and enhance their ability to borrow as a result.

Pay loans and bills on time

Nothing hurts credit scores more than a late payment, especially on longstanding loans like mortgages and car finance. Paying accounts punctually and in full shows lenders that the person in question is a responsible borrower and can handle credit. What’s more, late payments are not only bad for an individual’s credit score, but can also lead to additional charges such as late fees and extra annual percentage rates on credit cards.

To ensure any loans are paid off in time, millennials should make a list of every monthly bill they pay, as not having a handle on these obligations will make it more likely for them to miss payments. This list should also include every lender listed on their credit reports, as well as any recurring obligations (such as direct debits and standing orders) on their bank statements. They should then divide these into payments that can be made automatically and those that can’t. Once new Direct Debits have been set up, a system for transferring any manual payments should be the next port of call. These could be paid immediately, on a recurring basis each month—in the latter case, individuals should set a reminder on their calendar or phone to help jog their memories when the time comes.

Limit credit applications and keep credit utilisation low

Whenever somebody makes a credit application—regardless of the type of credit they’re applying for, or how much they’re looking to borrow—a ‘hard search’ is made on their account. This leaves a mark on their credit report that other companies can see. If a borrower applies for a loan too often, it can give lenders the impression that the individual is overly reliant on credit, and make it less likely for their application to be approved. So, those who have been rejected for credit should wait a while before applying again—Experian recommends only making about one application every three months.

It is also important for millennials to minimise their credit utilisation—the percentage of their credit limit that they actually use. For instance, if they have a limit of £1,000, and use £500 of that, their credit utilisation would be 50%. Lenders find borrowers with a lower percentage a lot more favourable—30% and below is considered particularly beneficial—and this will be taken as a sign that the individual in question can manage their credit.

Regularly review credit reports

It’s important to keep a close eye on credit reports to avoid mistakes or fraudulent activity, both of which can be harmful to credit scores. For the former, false information submitted in any application can cause your credit score to be incorrect. By regularly checking their credit report, an account holder can ensure that all the information it contains is correct at all times.

 

Reviewing a credit report will also help individuals to mitigate the impact of fraud. Say they notice a spike in the amount they owe, or spot applications which they didn’t make—this could be a sign they have fallen victim to fraud. This can be hugely detrimental to an individual’s credit score, by making them responsible for other people’s credit actions. By catching this in advance and taking action, the policyholder can get things resolved with minimal repercussions