Key takeaways
- A recent study reports that millennials are extremely reluctant to take on any debt.
- By maintaining a debt-shy attitude, millennials are not establishing credit nor maintaining high credit scores.
- Establishing credit is very important and will allow you to get the best available interest rates on home loans, car loans, credit cards, and other things that require credit. This can greatly reduce the costs of obtaining these things.
- Having access to capital gives you the freedom to do more of the things you want to do and to build your wealth successfully over time.
Way back when I was a teenager, and went to high school dances, all the guys would line up at the wall and were very reluctant to ask the young ladies to dance. They were too afraid the girls would reject them. I thought about that because of a recent study I read reporting that millennials are very reluctant to take on any debt. They’re very debt shy right now for a variety of reasons.
Despite the numerous reasons you may be debt averse, it’s important to get past that and start at square one to establish credit. Next, maintain and improve your credit over time. There are a few ways you can do this:
- Be a co-signer on a credit card with someone who already has good credit. This is probably the easiest way because the other person can simply add you on the card. From there, you can establish credit by associating with the other person’s already good credit.
- Get a secured credit card from a bank. With this method, you actually open up an account associated with the credit card, deposit money, and draw against it. Over time, this will build your credit.
- Maintain your credit as you go along. Your goal is to build your credit to a FICO score of 780 or better. This gets you the very best available interest rates. Verify that you’re maintaining this score by checking it on a regular basis. You can do this once a year for free through annualcreditreport.com.
- Keep your credit utilization rate at 30%, or less. Imagine you have credit card limits totaling $10,000. Don’t use over $3,000 (or 30%) of that available credit; otherwise, it dings your score.
- Pay all of your bills on time. It sounds obvious, but it’s very important to pay bills on time to keep your score high. The credit agencies all use algorithms to evaluate your behavior. They check to see if you’re opening a lot of credit cards and if you pay on time, as well as other behaviors—all to determine whether or not they should reduce your credit score.
Once you know the how and the why, it’s not something to be afraid of or be reluctant to do. It’s a matter of building your credit, which you can typically do in six months or less. Why establish good credit? Because doing so gives you the lowest possible cost for auto loans, credit cards, home loans, and other things that require credit.
It makes a lot of sense when you realize having good credit helps keep expenses down. Start establishing your credit today and remember to get your free score from a credit agency. This country affords you the freedom to access capital, to have the power to do the things you want to do, and to build your wealth successfully over time. Establishing credit is the first step to taking advantage of those freedoms. Until next time, enjoy.