A Quick Credit Score Guide for Millennials 8 key points to set the course to a positive credit score. BY JORDAN NIEFELD, CPA, CFP
Getting your credit score under control while you're young can improve your financial opportunities for the future.
“ Like it or not your FICO credit score will follow you everywhere so be smart and understand the FICO score is one reason credit scores can make or break your budget.”
Millennials today, more than ever, are trying to navigate through the difficult maze of financial independence and security. The problem is many times they may face several challenges along the way primarily because they don’t understand some key points when it comes to their credit scores.
I have a few tips Millennials should consider reviewing with their financial advisor or CPA in the near future.
1. Here is a case study I had with a millennial and our discussion about his retirement savings plan and his current student loans. Millennials (born between 1982-2000, roughly) with student loan debt should not deter someone from properly investing and saving for retirement. After running the numbers, as long as your interest rate is below 7.5% you are better off making your minimum payment while preparing a saving strategy at the same time.
Why 7.5%? Because over the long run you will be able to outperform and earn more of a return on your investment, especially if you begin saving in your 20s and/or early 30s.
2. Millennials are less knowledgeable about credit scores simply because they have had less experience in the financial services marketplace. This is already putting them at a significant disadvantage. How can someone except to practice successful habits if they don’t have the knowledge of how to do it due to inexperience.
3. Most Millennials don’t know who's in charge of compiling their credit report? Nope, it's not that company FICO, bank, or even a specific government agency (we hope). Instead, the three major credit bureaus: Experian, Equifax and TransUnion are responsible for pulling together your credit records. Here, in general, is how the cycle works:
Banks and financial institutions send these bureaus data about their current customers. Any type of credit contract you have related to debt will be reported, including account information on student loans, credit cards, mortgage loans, car loans and other lines of credit. Debt collectors report to the credit bureaus, too. So, yes, that unpaid college health center bill could pop up on your report and hurt your credit score.
4. It’s all in the score! The FICO score that is: this is the score where lenders determine whether you can get approved for a loan and at what interest rate you will be paying. The higher the score the lower the interest rate. We want a score over 660 (anything lower is considered subprime). Like it or not your FICO credit score will follow you everywhere so be smart and understand the FICO score is one reason credit scores can make or break your budget.
5. Many Millennials should know that utility companies, cellphone providers, landlords and insurers also will ask for a credit report when determining whether they want to do business with you. Businesses almost always ask about inquiring about your credit score, but they don't have to so look at the fine print in any application.
6. Thanks to the Credit Card Accountability Responsibility and Disclosure Act of 2009, or Credit CARD Act, everyone is entitled to one free credit report from each credit bureau every year. Get your free credit report by visiting AnnualCreditReport.com.
7. Millennials should know that some personal information, including your current and previous addresses, telephone numbers and date of birth, may appear on your credit report, but it won't influence your actual score.
8. The credit scoring models use some combination of payment history, debts owed, available credit, length of credit history, types of credit and those aforementioned credit inquiries to come up with your number. So beware…pretty much everything effects your score!
Jordan Niefeld, CPA, CFP believes everyone has a right to achieve a secure and prosperous financial future so that their time can be spent with family, friends, and the important things in life. He is very passionate about guiding individuals toward their ultimate life goals in a very comprehensive and thorough manner while utilizing a 4 step process (Discover, Diagnose, Design & Deliver) that separates him from the rest.