As a society we have become profoundly dependent upon credit, and indeed a significant part of our economy is based on consumer debt. But the ways in which credit is used vary among the generations, as do attitudes towards credit. In truth most of us could use a little more education about the subject, no matter how old or young we are.
Distinct generational differences
The credit agency TransUnion released a study in May 2016 examining generational differences in credit usage. The numbers were very interesting but they did reveal one common thread among all of the generations studied: a majority of consumers are using more than 50 percent of their available credit. Some are using far more.
The report breaks down the respondents into four distinct age groups, indicating the average percentage of available credit each is using.
- Millennials (aged 18-36) – using 79%
- Generation X’ers (aged 37-51) – using 77%
- Baby Boomers (aged 52-70) – using 65%
- Silent Generation (aged 70+) – using 51%
Financial analysts recommend keeping your usage of available credit below 30%, partly because 30% of credit score calculations are based on utilization ratio of available credit. In addition, utilizing such a large percentage of your available credit doesn’t leave much in reserve for unexpected expenses or emergencies.
The study also found that the younger the generation, the more likely were its members to have subprime credit, which prevents them from getting lower interest rate loans or credit cards, or in many cases, from getting loans at all. Among Millennials, for example, almost 43% have subprime credit, while slightly over 30% of Generation X that immediately preceded them have subprime credit. If this trend continues, poor credit could eventually become an all-but-universal fact of life, which would severely impact not only individuals, but the global economy as well.
Don’t gloss over your credit report
Interestingly enough, in a survey released earlier in 2016, TransUnion also found that nearly half of U.S. baby boomers (currently aged 51 to 70) say that they believe their credit score matters less after age 70. TransUnion says that this is a misconception, because good credit is just as important in the retirement years as it is for younger people.
But baby boomers aren’t the only generation with an imperfect understanding of credit; many millennials are similarly confused. The truth is that good credit is crucial at all stages of life, and that’s why it is important to keep up with the information that’s on your credit reports. And that means more than getting your report, looking at your overall condition, and feeling satisfied if it seems acceptably good to you. All too frequently, credit reports carry erroneous or outdated information, and in worst cases, can indicate that your identity has been stolen and that someone else has been using and abusing your previously good credit.
In the event that you find errors on your report, and especially if you discover entries detailing accounts you have not approved, you will need to act quickly and aggressively to get those errors or unapproved entries corrected or removed. It could take some time and effort, but it is definitely worth the effort, since so much of your life is affected by your credit. And the somewhat less traumatic process of improving your credit score will take some effort and discipline on your part, but it too will pay off in ways you might not even imagine, such as allowing you to get a better job or pay lower premiums on your insurance policies.
Ways to improve your score
There are things you can do to raise your credit score, no matter what generation you belong to. If you are young and just beginning on your personal, professional, and financial journey, you probably need credit even more than some of your older counterparts. You might be trying to buy that first new car on your own without help from your parents, or looking to buy a house as a way to avert constantly-rising rents. The obstacle facing you is that you have yet to establish a long-term credit history, so lenders will naturally perceive you as a higher risk than someone who has a long list of credit that has been properly managed. Start small, opening low-balance credit card accounts or making small personal loans, and paying the balances off as quickly as you can.
If you are older, there is a greater chance that there are errors in your credit report, listed accounts that have not been properly updated or closed by the lender and/or the reporting agency, or reports of late payments. Sometimes, you can get the creditor to remove a minor misstep by making what is referred to as a goodwill adjustment, but you will need to request the adjustment, typically by sending them a goodwill letter.
If you have kept up with your credit card accounts, you can request an increase in your available credit balance, which will effectively lower your credit utilization ratio described above, thus raising your credit score. If you can, you should also try to lower the balances on your accounts, which also lowers your credit utilization ratio, and demonstrates better-than-required performance in paying your debts.
People use credit for different things at different times in their lives. But whether you’re just starting out in your career, are in midlife, or well into retirement, it’s important to do whatever you can to keep on top of your credit report and score.