Almost 1 in 3 Gen Zers Don’t Have or Don’t Know If They Have a Credit Score: Here Are 6 Things They Need To Know
Young Americans are feeling the pressure of graduating high school, starting college, entering the 9-5 workforce and living more independent lives. With the heightened responsibilities on their shoulders, it’s understandably tough for Gen Zers to stay on top of everything they should know about living financially healthy lives.
That being said, the number of Gen Zers who don’t know anything about their credit scores is concerning as starting healthy credit habits now will help this generation tremendously down the line. According to a recent FICO study, almost 1 in 3 members of this generation don’t have or don’t know if they have a credit score.
Keep reading to find out experts’ top six tips for this generation when it comes to understanding credit and what an ideal credit score is for Gen Zers.
The Majority of Gen Zers Do Not Understand Credit Scores
Having a general understanding of what a credit score is varies across generations. According to the study, a mere 1 in 5 Gen Zers understands credit scores. In comparison, 90% of all Americans say they at least somewhat understand what a credit score is. With Gen Z having a concerningly low credit understanding, it is incredibly important for this generation to feel financially empowered in order to set themselves up for a better future.
Young Americans’ lack of credit literacy could be holding them back from the financial goals they should be reaching. As already mentioned, many Gen Zers do not have a credit score or they do not know whether they have one (29%). This represents a major generational gap as a mere 8% of boomers fall into this category.
If you are a Gen Zer who does not understand credit scores, no need to fear. Read on to learn everything you need to know about this aspect of credit and feel more financially confident.
What Is a Credit Score?
Let’s start with the basics. Since building credit is an important building block for future investments such as a home or car, it’s vital that Gen Zers know what the three numbers mean.
“Your credit score is simply a measurement that lenders use to determine the likelihood that you will pay back what you owe,” said Jenelle Dito, senior director of FICO Score Open Access. “The FICO Score measures how long you’ve had credit, the types of credit you have, how much credit you have, how much of your available credit is being used and if you’ve made payments on time.”
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6 Things Every Gen Zer Needs To Know About Credit Scores
If you’re 18 it might seem crazy to be already worrying about credit scores. However, It’s important for young Americans to build a healthy credit score early in order to be better candidates for future investments.
How To Establish Credit
Establishing good credit can feel like a “catch-22” situation where you need to have a history of credit in order to obtain a credit score. The good news is, lenders are always willing to take on new borrowers.
If you are a young person looking to start building credit, opening a secure credit card can be a great way to start.
“With a secured card, you will provide cash collateral to the credit card company for the line of credit,” Dito said. “FICO Scores evaluate secured cards the same way as any credit card. Using the card, paying on time and keeping balances low relative to the credit limit can help you establish credit and qualify for the minimum scoring criteria.”
What Makes Up Credit Score Numbers
Credit scores have a three-number value based on your financial and credit history.
“There are 5 key factors that make up the FICO Score, calculated from the information in your credit report – payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%),” Dito said.
How To Establish Healthy Credit Habits
It might seem overwhelming to have future financial options resting on three simple numbers. Thankfully, by establishing healthy credit habits you can set yourself up for a financially healthy future.
“Knowing the factors of your FICO Score can help you practice healthy credit habits such as maintaining a positive payment history and keeping debt levels low, which helps your FICO Score in the long run,” Dito said.
The Importance of Checking Your FICO Score
A good practice for staying on top of your financial health is regularly keeping an eye on your credit score. Treat your credit score like your bi-annual dentist visits and make sure to check up on it a couple of times a year.
“It is important to actively monitor your FICO Score as one key measure of your overall financial health,” Dito said. “It might feel intimidating to check your credit score if it’s not already part of your routine, but this knowledge is key. Research has shown that consumers who frequently check have higher FICO Scores.”
What’s a Good Target Credit Score for Gen Z?
In general, the higher the credit score you have, the better. However, for Gen Zers just starting to enter the credit score sphere, don’t expect a perfect score to happen immediately.
“Don’t worry about getting a perfect ‘800’ and stay the course with your on-time payments to build up to a good score,” Dito said. “After that, most credit scores range from 300-850. Generally, having a higher score presents a lower risk to lenders. A ‘good’ credit score is considered to be in the 670-739 score range.”
Dito then shares that a “poor” score isn’t affected by age and would be considered any score under 580.
Where To Go For Help
Being a financially literate Gen Zer means that you not only are aware of you’re financial situation, but you also know when to ask for help.
“Understanding your credit score and how to manage it doesn’t have to be a mystery,” Dito said. “There are many educational resources available, including free workshops supported by FICO where you can learn about your credit score directly from experts. Visit www.scoreabetterfuture.com or myFICO.com to learn more.”
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