In a recent TransUnion study it was revealed that 43% of Millennials are dealing with a subprime credit score. Why are Millennials with bad credit so common?
In 2014, a Bankrate survey revealed that 63% of Millennials were steering away from credit. Since many Millennials witnessed firsthand how the Great Recession affected the United States, and how it eventually affected the Canadian economy (the crisis took almost a year longer to get here), it is understandable why this segment of the buying market was shy about taking on credit.
The 2016 TransUnion study can be seen as an indicator that the strategy of shunning credit altogether is hurting more than it is helping Millennials. On the VantageScore scale, 43% of borrowers ages 18 to 36 have a credit score of 600 or lower.
What can Millennials do in order to build good credit?
Millennials and Building Good Credit
First, let's cover the basics: Keeping your utilization ratio low (under 30% of your credit limit is recommended), consistently making on-time payments and having a healthy mix of installment loans (i.e. mortgages, auto loans, student loans, etc.) and revolving credit lines (credit cards) are the cornerstones to maintaining a good credit score. However, there are other things you can do to help build your credit and rise above a subprime credit rating.
According to TransUnion Senior Vice President Ken Chaplin, the following tips can help you cultivate your credit.
Ask your landlord to report your rent payments to the major credit bureaus.
This will add another type of credit to your reporting history. While not all scoring systems will utilize your rental information, some do, including VantageScore.
Use your available credit lines regularly.
Being responsible with your credit does not necessarily mean never using it. Chaplin notes that recent credit activity plays a factor in your credit score. Use your card to occasionally pay for gas or groceries, and pay off that balance in full.
Also, if you don't use your available credit, a credit card issuer could choose to close the account - negatively affecting your credit rating by reducing the total available amount of credit in your name.
In addition to the above pointers, resident credit card expert Sean McQuay of NerdWallet provides this tip:
Slow and steady wins the race.
"A good rule of thumb is to wait six months to a year between card applications," according to McQuay. Why? Because when you apply for credit, the issuer will run a "hard inquiry" on your credit report. Too many of these inquiries in a short period of time can lower your score, and make you look desperate for credit in the eyes of a lender. When you already have less than great credit, further hits to your score don't help.
The bottom line is, if you need to build credit, you should be wise about what you are applying for. For example, a store credit card may be a great way to save money on purchases from that establishment, but don't jump at every offer that provides a discount, especially if that discount is only applied to your first purchase. Choose carefully. Also, make sure that credit cards that have rewards benefits are actually worth it before applying - you may find that you will pay more in card fees than any of those rewards are worth.
You know what will help you and your credit? Getting approved for financing for affordable and reliable transportation. If you need a vehicle, but think that you cannot get approved because of a low credit score, Canada Auto Loan can connect you with a dealer that can help. We have a countrywide network of dealers that specialize in helping low credit car buyers get the financing they need so they can get back on the road, fast.
Complete our fast, secure and obligation-free online application today, and start on the path to great credit.