8 Things Gen Z Needs To Know About Credit Scores

Credit scores. Everyone needs them in order to get their financial lives on track, but they can be tricky to understand, especially if you’re new to them.

According to a recent survey from FICO, one in five Gen Zers say they understand credit scores only a little or not at all. It’s time for an education.

Here are eight things Gen Z needs to know about credit scores, according to experts. 

What a Credit Score Is 

First things first. What is a credit score? 

“A credit score is usually a three-digit number, from 350 to 850, that lenders use to help them decide whether you get a loan or credit card and at what rate,” said Laura Sterling, VP of marketing at Georgia’s Own Credit Union. “The score is a representation of how well you will be able to pay the loan back.”

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Your credit score is based on five key factors, said Holly Woodward, engagement and communications associate with Capital on Tap:

  • Payment history (35%)
  • Amounts owed (30%)
  • Length of credit history (15%)
  • Types of credit used (10%)
  • New credit (10%)

How To Establish Credit 

To get a credit score, and then to get a good one, you first need to establish credit, which you can do in a few ways, including opening a credit card account, or getting a secured loan. 

“If you do not qualify for a loan or credit card, consider a joint applicant, like a parent or guardian,” Sterling said. “Many banks and credit unions have accounts for students and first-time borrowers to help them establish credit.”

Checking Your Credit Score 

There are many online sites that allow you to check your credit score, but the best place to check is one of the three major credit bureaus: Equifax, Experian or TransUnion. 

“It’s important to check your credit score at least once a year,” Sterling said. “Even if you’ve checked it in the last year, if you suspect fraud or need a loan for a large purchase, you’ll want to check your credit score again.”

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Credit Scores Change Frequently 

Credit scores have a sneaky habit of changing pretty often, though it depends on your activity. Checking your score won’t hurt your credit whatsoever, so feel free to do so as often as you like. 

“You can generally expect your credit score to change at least once a month,” Sterling said. “But it can be more often if you have multiple loans. If you are just starting to build your credit, your credit score may change less frequently.”

Knowing Whether You Have a Good or Bad Score 

Even if you know little to nothing about credit scores, you probably know there is such a thing as a bad one and a good one. What’s the difference? 

“Typically, anything under a 600 is considered a bad credit score,” Sterling said. “On the flip side, anything above a 670 is considered good. Gen Z consumers should keep in mind that it can take a long time to repair a bad credit score.”

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Your Credit Score Makes or Breaks Your Ability To Get Loans

As far as lenders are concerned, you are your credit score, and they will use this numerical representation of you as a basis for whether — and how much and at what rate — they will lend you.  

“Credit scores are used to determine if you qualify for a loan and your interest rate,” Sterling said. “If you have a low credit score, that typically means that you have not paid your bills on time, have excessive debt or simply may not have any credit history. As a result, you may be denied a loan or may pay a much higher rate than someone with a good credit score.”

What Will Hurt Your Credit Score

Establishing, building and maintaining a good credit score is important. To do so, you must avoid a number of errors. 

“Failing to make payments, maxing out your credit cards, requesting an excessive amount of credit in one go and canceling credit card accounts too rapidly are all basic errors to avoid,” said Carl Jensen, a personal finance expert and the founder of Compare Banks

Of all these credit score sins, missing payments is probably the worst.

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“Missed payments have a significant impact on credit scores, which Gen Z should be aware of,” said Beth Rivera, founder and CEO of Best Financial Planners. “Late payments can severely damage your credit score, making it difficult to obtain loans, credit cards and even apartments. Each missed payment can stay on your credit report for up to seven years, so it’s critical to keep track of and pay your bills on time. If you do miss a payment, it’s important to make it up as soon as possible and avoid missing any future payments.”

How To Improve Your Credit Score 

A bad credit score is a terrible burden to carry, but there are several ways to turn things around and get that score higher. It comes down to due diligence and discipline, particularly around debt and credit card usage. 

“The best ways to improve your score are paying your bills on time and paying off your credit card balances each month,” Sterling said. “Also, know your credit limit on each card and charge no more than 30% of that limit. Avoid closing accounts if you’re trying to improve your credit. Once your scores are high, you can close an account or two if you feel you have too many credit lines open. However, try to avoid closing your oldest credit card or those with the highest limits.”

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About the Author

Nicole Spector is a writer, editor, and author based in Los Angeles by way of Brooklyn. Her work has appeared in Vogue, the Atlantic, Vice, and The New Yorker. She's a frequent contributor to NBC News and Publishers Weekly. Her 2013 debut novel, "Fifty Shades of Dorian Gray" received laudatory blurbs from the likes of Fred Armisen and Ken Kalfus, and was published in the US, UK, France, and Russia — though nobody knows whatever happened with the Russian edition! She has an affinity for Twitter.
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