Younger Americans face more than their fair share of economic challenges, including a brutal entry-level corporate job market, skyrocketing rental and home ownership costs, and strained household budgets.
Unfortunately, 20-somethings are missing an opportunity to restore some balance to their budgets and give long-term savings plans a lift by not paying close attention to their credit report.
According to a new study from San Antonio, Texas-based USAA, only 45 percent of Gen-Z lack a good understanding of the factors that affect their credit score, with about 1 in 5 having never checked their credit score at all.
Additionally, only 55 percent know the factors that determine a strong credit score, USAA reported.
It’s no wonder that 54 percent of Gen Z say they experience anxiety over checking their credit scores
Of that demographic, 62 percent report anxiety stops them from checking their score.
“It’s no secret that Gen Z is facing financial stress, but what we’re seeing is that many are lacking a crucial understanding of how credit affects their long-term financial health,” said USAA Bank President Michael Moran in a statement.
Waiting to Check Credit Is the Biggest Missed Opportunity
Financial professionals who work with people on credit say the negligence issue starts early.
“Too many younger folks don’t learn about credit until something goes wrong, like getting denied for a car loan or not being able to move into an apartment,” Jose Rodriguez, owner of Got Credit, a Red Bank, N.J.-based credit repair company, told NTD by email. “When nearly half of Gen Z doesn’t know what affects their credit score, that’s a problem.”
Rodriguez believes the credit report avoidance problem isn’t just about numbers; it’s about access. “Credit affects where you live, what you drive, even what job you can get in some cases,” he said.
The financial risk that younger Americans are taking by ignoring credit is substantial and potentially ruinous if left unattended for the long haul.
“The biggest risk is walking into adulthood financially blind,” Rodriguez said. “If you don’t know how credit works, it’s easy to rack up debt, miss payments, or open too many accounts.”
Doing so crushes a credit score and makes major financial decisions like buying a home or starting a business more difficult.
“People don’t realize that something as simple as paying a credit card late, even once, can hurt their score for years,” Rodriguez noted. Additionally, maxing out cards and only making minimum payments is a financial trap that’s hard to shed. “This leads to high utilization and massive interest charges,” he added. “It’s not just bad credit, it’s expensive credit.”
These Key Tips Can Solidify Anyone’s Credit Picture
There’s ample evidence that paying close attention to one’s credit score can pay off financially, particularly for those younger consumers just getting started with their financial lives.
Start that journey with these action steps.
Check your credit report regularly.
Rodriguez said he regularly tells his company clients that you can't fix what you don't look at.
“Sites like AnnualCreditReport.com let you pull reports from all three bureaus for free,” he advises.
Pay your bills on time.
Leaving unpaid bills around is a toxic financial habit. "Pay your bills, no matter what,” Rodriguez said. “Even if it’s just the minimum, on-time payments are the number one factor in building a strong score.”
Keep your credit card balances low.
Ideally, it’s a good idea to stay under 30 percent of your credit limit (also known as your credit utilization rate). “Yet if you can keep it under 10 percent, that’s even better,” Rodriguez advised. “Even one smart decision like setting up autopay or opening a secured credit card can change someone’s financial life down the line.”
The views and opinions expressed are those of the interviewees. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. NTD does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. NTD holds no liability for the accuracy or timeliness of the information provided.