May 29, 2014 Walt Wojciechowski
Having grown up in a turbulent economic atmosphere, recent reports have shown that millennials are quite monetarily responsible - more so than preceding generations. However, their understanding of how consumer credit data is assembled leaves something to be desired. Though they tend to exercise caution before purchasing an item or making a significant decision that will impact their finances, they often fail to comprehend how professionals perceive their credit.
Older generation has a better idea
According to The Street, a survey conducted by VantageScore Solutions and the Consumer Federation of America discovered that only 42 percent of United States consumers know that a credit score measures the risk of not repaying a loan rather than elements of, or attitude toward, consumer credit ratings. While 47 percent of Americans under the age of 35 understand that age is not factored into an individual's credit, 60 percent of U.S. citizens between the ages of 45 and 65 recognized that such an aspect is not considered.
Barrett Burns, president and CEO of VantageScore Solutions, noted that the older generation also knew that the three primary credit scoring agencies - Experian, TransUnion and Equifax - aggregated the personal monetary information of U.S. residents to conduct commercial credit reports. This means that older constituents understand who is handling their data and how it is being collected.
"It isn't a big surprise that older consumers know more than younger consumers about credit scoring, but the generation of consumers coming into the workforce is particularly challenged by massive student loans," said Burns, as quoted by The Street. "A student student loan can actually help establish good credit for these consumers, but the concern is that many of these consumers could miss payments and begin their financially lives deep in debt with low credit scores."
Where millennials should go from here
Mark Huffman, contributing to Consumer Affairs, wrote that many millennials believe that a corporation offering to provide an individual with an alternative credit score is a good solution to solve a poor financial situation. Though a somewhat unconventional way to solve such an issue - at least, in the traditional sense - the practice is completely legitimate and may change the face of the financial assistance industry as the millennial generation matures.
Huffman outlined three aspects of the credit environment this generation isn't particularly aware of:
- Federal law allows consumers to get free copies of their credit reports from all three reporting agencies once a year.
- Instead of carrying over a credit card balance, it's best to pay it off in full each month - which will show creditors that they know how to manage finances responsibly.
- Transferring credit from one provider to another doesn't improve a score - it shows landlords, banks and other entities that pay attention to such information that the borrower is desperate for a quick fix to a poor situation.
Overall, Huffman recommended that millennials make proactive efforts to educate themselves in consumer credit, something that short term lenders and other alternative credit companies can help with. The more knowledgeable consumers are, the more financially sound they'll be in the future, which will result in a more stable economy.