Some new research shows millennials are making a lot of mistakes when it comes to credit.
According to Bankrate.com, 63% of people ages 18-29 don’t have a credit card at all, which can be attributed in part to the decline of credit card dependence over all, but also because recent legislation has made it more difficult for people young than 21 to get credit cards.
However, some people say they just don’t want the burden of debt. In some ways that could be a good thing, but Intermountain Credit Advocates President Ike Ikeme says people can’t avoid credit completely.
He says, “A ghost [credit] profile might be just as bad as bad credit because it’s still not getting you any lending.”
Ikeme believes the biggest problem is that millennials have not been properly educated about credit. He believes we have access to more information than ever before, but not everyone is using it. For instance, he says a lot of people think a credit score is mostly based on how well someone pays their credit card balances.
He explains, “It’s only a fraction of your score. There is also the diversity of your credit. You want to make sure you have different forms of credit on there, like installment loans or mortgages.”
Take, for example, student loans. Ikeme says a lot of young people take on student loans early in their academic career, but, many of these students don’t finish college and have a mountain of debt left over. He recommends students hold off on taking on that debt until they’re closer to graduation and more motivated to finish.
“Try and push that debt toward the latter half of your education where there is light at the end of the tunnel,” Ikeme says.
Plus, some of the tricks younger people were taught to build up a good credit score might not work. Many people may have been told that purchasing a small item on credit, then immediately paying off their balance would lead them to a good credit score. Ikeme says that’s not true.
“That amount that shows at the end of the billing cycle is what’s reported to the bureaus for most credit cards," Ikeme says. "That amount is what you want to make sure is under 30 percent [of your credit limit], or if you can do it appropriately, best at one percent.”
But Ikeme says many millennials also have one big problem they need to overcome. If they’ve missed a few credit card payments, they tend to give up on making payments altogether.
“People who feel their credit might be bad, or it’s not where it needs to be, they don’t want to look at it,” Ikeme says.
He says credit can be repaired, even after major problems.