We tend to stereotype each generation with a personality. Baby Boomers are said to be the idealists shaped by Woodstock, the Vietnam War, JFK, RFK and MLK. Millennials, 80 million strong, are socially minded, confident (even bordering on entitlement) and optimistic, despite the tragic events that have shaped their generation, like the 9/11 terrorist attacks and the largest economic meltdown since the Great Depression. They are also a tech-savvy group knowledgeable the latest “thing”… except perhaps, how their credit score can hurt them.
A recent article on Bankrate article indicates that Millennials don’t really know much about credit scores. In fact, a survey conducted by the Consumer Federation of America and VantageScore Solutions found that Millennials know less than any other generation about how credit scores work, who is using these scores, and what factors drive the credit score calculations. Millennials may be suffering what Bankrate calls, “Credit Confusion.”
The problem is that a goof - a late payment, a missed bill, or any other financial misstep - can cause problems that can follow your Millennial for a long time and cost a lot of money. This is where we Baby Boomers need to impart a little knowledge. So, Boomers, it’s time for that sit-down with your offspring to explain how it all works and why it’s important.
Tip #1: Watch Out For “Big Brother”
Explain that there are three major credit reporting agencies:
Tip #2: Stay Ahead Of The Game
The Credit Card Accountability Responsibility and Disclosure Act of 2009, states that everyone is entitled to one free credit report from each credit reporting agency every year. You need to speak to your Millennial about obtaining these each year. They need to not only know how they are doing, but to also make sure that there are not any errors on the reports. They may also pick up inaccurate information or mysterious accounts that could indicate that their identity has been stolen.
Tip #3: Obtain Your Credit Score
Credit reports will not necessarily contain a credit score. A credit score can be purchased for usually a small fee, although creditors (e.g. credit cards) and other sites may offer it for free. FICO is the most popular scoring model, but there are several with slightly different scoring. FICO credit scoring ranges from 300 to 850. The score will reflect some combination of how you have paid your debt, your available credit, the length of your credit history, the types of credit, etc. According to Experian, most credit scores fall between 600 and 750. A score above 700 is considered to be good.
Tip #4: Keep Your Credit Score High
Traditionally, the higher the credit score, the lower rate you will have to pay on any loan you obtain. It shows, in principle, how responsible you have been handling your credit and bills. Explain to your Millennial that, in theory, their credit score can make or break their budget. And, if your credit score is high, flaunt it. Tell your Millennial that it’ll help them negotiate a better loan rate.
Tip #5: Be Vigilant About Others Lurking In The Bushes
Financial institutions are not the only companies looking at your credit score. Utilities, cellphone providers, landlords, insurers, and even future employers may ask you for a credit report and score to determine if they want to do business with you or hire you. Under the Fair Credit Reporting Act, employers first have to ask for your permission to look at your report, but let’s face it; if you say, “No,” it may raise a red flag.
Tip #6: Don’t Have Too Much Available Credit
If the credit agencies see that you have too much available credit, it can really damage your credit. This is particularly an issue if you have overextended your credit. You only should have one or two credit cards.
Tip #7: Pay On Time… Repeat… Pay On Time
Paying your bills on time is probably the most important advice to give your offspring.
Did you know that, according to Article 134 of the Uniform Code of Military Justice, service members are required to pay their debts? For you Military Millennials, it means that your credit reports can be pulled for things like security clearance, which may be denied if the report is not found to be satisfactory. Less than honorable discharges may even result if debts are not responsibly repaid.
The bottom line? We Boomers need to impart our knowledge to our Millennials because, as they grow up, they will become the next generation of elders who will have to impart their wisdom.
