10 Mar 2017

Why younger millennials need to pay attention

Despite the Claims of Naysayers, Good Credit Does Matter.

You might not think that a topic as staid and, frankly, boring (to many people, anyway) as consumer credit reports would be the focus of controversy – but in fact experts do disagree, sometimes vehemently, about the importance of credit reports and credit scores. There’s already a lot of confusion around this subject, and when you hear someone say that you don’t really need a good credit score to buy a car or a house, it just adds to the confusion.

Now, it’s true that your credit score is only one part of the overall picture that mortgage lenders peruse when sizing you up. It’s also true that you can buy a car with poor or no credit, particularly if you can manage to pay cash, or mostly cash, for your purchase. But there are many ways that a good credit report can benefit you, whereas a bad one can hamper you (for instance, even if you can get a loan there will be higher costs and interest rates).
So unless you are absolutely confident that you will always have cash on hand to pay for whatever you need or want throughout your life, it’s a good idea to give your credit the attention it really deserves.

Why younger millennials need to pay attention

Younger people may be particularly vulnerable to the notion that “credit doesn’t matter.” After all, life in your twenties is about exploration, self-discovery, and “following your dream.” But during this exciting and tumultuous phase of your life, when pragmatism seems too mundane to warrant your attention, there are forces at work outside the realm of your current focus that can have a dramatic impact on your life. Your credit score is one of those forces, and one in which too many young people learn that it is certainly not easier to gain forgiveness than to get permission. And yes, it really does matter.

It is easy for older folks to remember and relate to your temptation to put off making a credit card or car payment, especially when you do so in order to have the money to do something you’re excited about. After all, “the bank doesn’t need my money as badly as I need (fill in the blank). And I can make it up to them in a month or two, at most.” Sounds reasonable enough, if you overlook the fact that by the very nature of the business it is in, the bank keeps very precise records of whether and when you live up to your agreement to pay them. Miss even a relatively modest payment by just a few days, and you in effect inform your bankers that you are not really reliable. That is what they will put in your credit report, and “fixing it later” is sometimes as effective as un-saying hurtful things to someone you care about. The effort is arduous, and the effects can linger for many years.

Educate yourself about what does and doesn’t matter

First of all, you need to know the difference between your credit report and your credit score. The report is a detailed listing of the credit you have and have had in the past, complete with notations as to how you have adhered to the terms of the agreements you’ve made. Think of those agreements as being like the individual assignments you were given in class.
Your credit score, however, is different. It doesn’t make note of how well you performed on individual assignments. It is just a score based on your overall performance, and provides prospective creditors with a shorthand assessment of your reliability in meeting your credit obligations. From it, creditors can get a reasonably good idea whether you are likely to make your payments in full and on time, whether you are conscientious or haphazard in making use of available credit, and whether your credit history demonstrates a long and consistent pattern of responsible behavior or a flurry of potentially reckless actions.

Don’t panic over a credit hiccup

Now that we’ve finished imparting the fear of financial gloom and doom, it’s only fitting that we take a bit of the pressure off, and possibly irritate some people who brag about their great credit score as if it were the financial equivalent of winning the Tour de France, and who shrink in terror at anything that might risk dropping that score a few points.

Look at it this way. For some people, getting an excellent credit score, or winning the Tour de France, is a singular goal. To the vast majority of other people, it is more important to really enjoy the ride or put that good credit score to use. For example, if you’ve got several high-interest rate credit card balances, you would certainly benefit financially by consolidating those balances with a loan that carries a significantly lower interest rate. However, if you apply for that loan in a few places in an effort to get the best deal, those several applications submitted in a short period of time will likely lower your score a few points. Is saving a substantial amount of money worth the hit to your score? Of course it is, especially when you factor in the likely rebound in your score as you pay off the loan, compounded by the lowering of your overall debt. And since lenders will look at other factors aside from your score to determine whether you are a good risk, a modest drop in your credit score that is caused by your having taken financially responsible actions can actually cause lenders to look upon you more favorably.

Your credit report(s) and score(s) certainly do not tell the entire story of your life. But they do reveal information about your financial life, and while that may not necessarily matter to those who love you, it often matters very much to prospective lenders. Be careful with – but not obsessive about –your credit score, and use it as it was intended, and you will make your financial life easier for years or even decades to come.

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About the Author


Author & Editor

Anthony is a SEO, Social Media and Money Saving Blogger | Business Development Manager | Husband | Father to a noisy toddler | Optimistic | Boundless Enthusiasm | Fortunate!

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