What Millennials Should Know About Their Credit Score

Millennials have become infamous lately for credit scores that lag behind preceding generations. There are a number of factors at play in their lower credit, not the least of which is relative youth and the fact that they are more focused on starting and advancing their careers at this point. While these factors will shift with time, there are a few things millennials should keep in mind about establishing a good credit score.

The interest rate at which you can borrow money is determined by your creditworthiness, and your credit score is one of the most important aspects in determining how much credit a lender is willing to loan you. Building up a good credit history helps convince lenders that they will get their money back. This comes into play when you apply for little things like a credit card, all the way up to making large purchases like a car or new home. Since your score is established over a long period of time, it’s important to start embracing good credit habits at a young age so that you have an excellent credit score waiting for you when you’re ready to make a major purchase. If it’s not up to par, it might be a long time before you’re able to afford the things you want.

Because of the time and effort that goes into building a credit score, lenders place a lot of value on this one number. And why not? It’s a concrete way to evaluate borrowers in relation to their peers. It’s also good business for them to seek out the most reliable and responsible people and it leads to fewer defaults in the long run.

As such, lenders will get competitive in the pursuit of good customers. That means that if you’re smart enough to have made it a priority to establish a good credit score, you will have made yourself appealing enough to lenders that they will offer you the lowest interest rates available to try and earn your business. The amount of money you can save in interest payments with a lower rate can be significant, and that financial disparity between good and bad credit is even greater if you factor in the opportunity cost that’s lost in having to pay more for the same thing. If invested wisely, the borrower with the good score can exponentially multiply the benefit of their fiscal responsibility over borrowers with lesser scores.

With so many advantages, there’s no reason why you wouldn’t want to improve your credit score, and to do that it’s important to know how these scores work. Given that these ratings are based on an established history, putting together a track record of paying all bills on time is a huge factor. The amounts may not be significant, but the responsibility it shows can really make you more appealing to creditors. The proportion of available credit you use is also a key indicator that shows disciplined spending habits and responsibility. So don’t close that credit card you haven’t used in ages, instead just keep it open and don’t use it. On top of the fact that closing credit cards doesn’t do wonders for your score, that extra debt capacity makes you look better by minimizing your proportional credit use.

Paying attention to your fiscal habits and minding the little details now will help get you the credit score for buying a home, car, RV, etc. for a good deal later on.