Personal credit rating guide for millennials
Remember that post I wrote that poo-poo'ed credit scores? Here's another take from a professional financial advisor who shares some insight that you may not have read before. Brian, the floor is yours!
Before we get into the good stuff, let’s talk about the elephant in the room: your reputation. We don’t mean ‘you’ as an individual, of course, we mean ‘you’ as a ‘millie’; a millennial; a first-generation digital native who whines about being poor while simultaneously posting photos to Instagram from your Dubai villa. Perhaps this isn’t a really a fair assessment. After all, it’s possible that you young’uns are actually working harder than the old farts who complain about you. But stereotypes do come from somewhere. While you may not be hopping from job to job, and while you may never have used the term ‘microaggression’ in your life, there is a good chance your money situation isn’t as good as you’d like.
No offense. This is nothing against you personally. We’re just quoting the facts here, and the facts state that a whopping 43% of millennials have a poor credit rating. The reason for some of you will be pretty obvious (like that BMW you haven’t yet paid off….), but — and let’s be fair to millies here — most of the time this isn’t your fault. It’s just how it is, and yes, it’s all a bit Catch-22. You need a good credit rating to get credit, but you need credit to get a good credit rating. It’s the same with jobs; you need the experience to get a job, but you need a job to get experience. Life is tough for millennials, but sitting back and whining about it isn’t going to get you anywhere. You need to get up and do something about it.
Even if you’ve got student loans coming out the wazoo, there are ways to significantly improve your credit rating. There are all the usual ways — applying for credit cards and using them, keeping your old accounts open, double checking your credit report to make sure they’re not confusing you with all the other Tom, Dick, and Harrys who haven’t been paying their bills on time — but you know this. You’ve already done all this. You’re bored of hearing this. So here are some pearls of wisdom that you might not have heard of, or that you might not have thought of. So listen up, here’s what you need to know:
Don’t be Shy: Promote Yourself!
As a millie, you’re already in a bit of a tough spot. By default, lenders aren’t going to like you. It’s nothing personal, it’s just because you’re most likely renting a place, and you’ve probably moved around a few times during the past few years, from your parent's house to college dorms, to bunking with friends. Most millies do this, it’s certainly not a crazy situation, but lenders don’t like it. Period. It makes you seem a bit ‘nomadic’, and like you’re going to do a runner with your loan and they won’t be able to find you. You can’t blame them. They have to protect themselves. But you can be the lesser of two evils.
Look at it this way. Lenders typically deal with two types of renters: renters who don’t report their payments, and renters who do report their payments. Take a wild guess at which ones they’re going to like more. You got it. They’re naturally going to favor the renters who leave a pretty solid paper trail showing off their good behavior, than the ones who quietly pay their rent in secret. And there’s good news for you digital natives who have this weird obsession with doing everything on the internet — you can pay your rent online through systems like RentTrack and have it automatically reported to the 3 major credit bureaus. This is your way of saying ‘hey, look at me, look how good I am with money!’. If you’re paying rent on a regular basis anyway, then you may as well get something good from doing it.
What NOT to do
Despite the many hardships of being a millie, there’s no denying that you guys do have things pretty easy in some ways. Digital natives live in a privileged world when you really stop and think about it. You live in a world where, if you want something, you can have it. You can order something from Amazon and have it delivered the same day; you’ve grown accustomed to instant gratification. Although this is pretty good for those times you’ve got a soda craving but don’t want to leave your apartment, it’s also quite dangerous. Today, we can buy practically anything we can think of, including a good credit score.
Buying a good credit rating is a quick, simple fix, but it’s also one that could turn around and bite you on the arse. The way it works is that you essentially ‘borrow’ someone else’s good rating by becoming an ‘authorized user’ on their account. Piggybacking is entirely legal, but it’s also hella questionable! You can also wave goodbye to your identity, as you’ll be sharing your social security number with a perfect stranger (and let’s be honest, if these people are taking part in shady practices, they’re probably not the most trustworthy). Credit agencies are also not quite as stupid as some people want to believe, and they’re quickly catching on to scams like this. You’ll be one of the lucky ones if it actually works out OK.
While we’re on the subject of shadiness, let’s take a moment to talk about ‘credit repair companies’. As a general rule, if you encounter one, run like the wind! A sweeping generalization, yes, but most of the time these companies work in one of two ways. (1) They use legal methods to improve your credit rating…. Methods which you should already be doing! Why pay someone to do it for you when you’re perfectly capable of doing it yourself? Waste. Of. Money. (2) They use illegal methods to improve your credit rating…. Which, as we probably don’t need to spell out for you, can land you in a fair bit of trouble with the law. Basically, what we’re getting at here is don’t bother. It’s best to keep it all above board.
If All Else Fails…
‘Stay in school, kids’. School is good, we like school, we can’t sing the praises of school enough…. But it teaches you guys that you’ve always got to be right. You don’t! ‘Adulting’ in the real world isn’t about doing everything by the book; it’s about knowing when to ‘fess up and admit you’re out of your depth, and knowing when it’s OK to ask for help. Your credit rating is one of those times. If you’ve exhausted all of your other options and your credit rating still isn’t looking too happy, then stop wasting your time and admit that you need a bit of a helping hand. You might not get it, but it’s definitely worth asking.
Now, as a proud millie, this isn’t going to be what you want to hear: you’ve got to suck it up and start groveling. Yes, it’s embarrassing, and yes, it’s demeaning, but if you’ve got a better idea let’s hear it! An important term you need to know about is ‘good will deletion’. It basically means that, if a credit agency is feeling particularly generous one day, they might be willing to erase some of the bad parts of your credit report, like they never happened. This isn’t an entitlement, and it’s not a guarantee, but it’s worth asking. If you don’t ask, you don’t get. You’re more likely to get a good will deletion if you’re usually pretty good at paying your bills on time, so be on your best behavior before you ask for the favor.
Care About Credit
Credit ratings are a funny topic at the moment. You’ve probably heard people say that they don’t care about their credit rating. Well good for them! The truth is that many people don’t need to be bothered by the number, but these people are the ones who have already established themselves within the credit world. That will be you one day. But for now, as a millennial, you really do need to care. Your credit rating can affect more than you think, from simple content insurance to mortgages, so don’t poo-poo it, OK?
Brian Loman is a financial adviser with more than 10 years of experience working in short-term lending industry. He currently shares his expert advice on Elc Loans website. His main goal is to help people become financially literate and find their path to stability.