Credit is a crucial component of your financial health and well-being. Without proper credit, it might be difficult, if not impossible to obtain the things you need throughout your life, such as a place to live, or a vehicle to drive. Throughout your life, you will be in different credit situations and your credit will be important for different reasons. To know what you need to do to get your credit where it needs to be, it is important to understand what your credit situation is likely to be at your specific stage in life.
Baby Boomers (1946-1964)
When you see those significantly high credit scores, most often they belong to Baby Boomers. It is a reward for those who have spent many years paying their bills on time, managing their debts, and diversifying their accounts. What's interesting about credit with this generation, is that high debt does not necessarily lead to a lower credit score. Whether it is due to the fact that Boomers have so many other positive factors with their credit, or they have higher credit limits making the ratio lower, it seems that having a larger amount of debt at this age is not as penalized. But that doesn't mean that you should stop trying to maintain that good standing. A good credit score may help you to obtain the things you desire for your retirement. Continue to make timely payments and while it is ok to add debt, make sure that you have the income to stay on top of it and keep the ratio of debt to limits low.
Gen Xers (1965-1979)
While Gen Xers have their credit significantly more established by this point in their lives, they are likely to rely on a good credit score the most. At this stage in life, you should be fine-tuning your credit, pushing it from fair to good or excellent. This jump in credit means significant savings when it comes to major purchases, paying down debt, or refinancing a home to get the lowest rates. The credit strategy at this point should be lowering the ratio of debt to open credit to 30% or less, continuing to pay bills on time, and making sure to avoid any blemishes on your credit record. Not only will having a higher credit score provide you with the freedom to make the purchase you want but will also provide you with the greatest savings on interest.
Millennials (1980-1994)
For millennials, the current goal is establishing and building a credit history. Those on the younger end of this generation may be experiencing their first taste of credit which often comes in the form of credit cards or student loans. The downside for this generation is that they have little credit history. This means even if the credit history they have is good, the lack of time and number of accounts may still lead to a lower score. The goal for credit during this stage in life should be to build it up enough to be able to qualify for home and car loans when the time for purchase arises. To do this, you will need to establish credit as soon as possible, always make payments on time, keep the overall debt amount low, and keep balances to limits low. It
is also advisable to diversify credit as well between long-term debt like a student loan and revolving debt with a credit card.
Gen Zers (1995-2012)
Generally, unlike their Gen Xer parents, Gen Zers tend to have lower average credit card debt compared to Gen Xers, but higher than Millennials. Because their younger age plays a role in their less established financial circumstances, Gen Zers may feel a larger financial burden than Millennials and Gen Xers. And though Gen Zers have lower overall debt than Gen Xers, they tend to use their credit cards more frequently. Gen Zers are also more likely to fall behind on payments than Millennials and Gen Xers because of their lower income and higher reliance on credit. According to educationdata.org, Gen Zers have an average debt balance of nearly $23,000 which is nearly $20,000 less than Gen Xers. One way Gen Zers can help to build their creditworthiness is to keep their credit utilization below 30% which is difficult in today’s world with a significantly higher cost of living than income ratio. Learning to live within your means and making it a habit to purchase stuff with cash can help lower your debt and increase your credit score. Strong credit will be extremely beneficial for Gen Zers in the future when trying to purchase large items like a car or a home or even getting a personal loan in case of an emergency.
Gen Alpha (2013-2025)
Interestingly, according to Parents.com, children ranging in age from 6 to 14 have already started thinking about and putting money away for eventual retirement. Over the years, as you move through generations, finances have become a more transparent topic in family discussions. When Baby Boomers were raising their children, speaking about finances was somewhat taboo. This negatively impacted Generation Xers who have noticeably struggled with debt, and generally believe they won't have enough saved for retirement to sustain them throughout the golden years. Recognizing this struggle they are experiencing comes from the fact that they didn't learn how to manage money from their parents or grandparents, they then began opening up about the importance of money management to their Gen Zer children who are even more transparent with their own Gen Alpha kids. In a few years, as Gen Alpha kids become young adults, having learned about financial strategies, how to save and invest, and maintain good credit from their more transparent Millennial or Gen Zer parents, they may approach retirement in far better condition than many of those who came before them. It seems the most significant factor is communication and parents and grandparents sharing real-life experience and knowledge they learned with their children.
Consider Consulting a Financial Professional
When dealing with your finances, budgeting, and managing your credit can be extremely stressful and difficult, and what might work for a family member or friend, won’t necessarily work for you. This is because everyone is different. Another problem people run into is they
make financial decisions based on emotions and that can negatively affect you. Seeking guidance from a financial professional can help to avoid some of the pitfalls that keep people from safeguarding their assets as well as they would like. A financial professional usually has the training and experience to review your finances without the distraction of emotion and help you design a strategy that aligns with the short and long-term financial goals for you and your family.
Important Disclosures:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by LPL Marketing Solutions
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Sources
· https://www.marketwatch.com/story/almost-half-of-millennials-say-that-their-credit-scores-are-holding-them-back-2018-07-16
· https://www.credit.com/credit-reports/how-credit-impacts-your-day-to-day-life/
· https://www.businessinsider.com/how-your-credit-score-can-impact-your-life-2016-5 · https://www.experian.com/blogs/ask-experian/research/how-baby-boomers-have-top-credit-scores-and-tons-of-debt/#:~:text=When%20it%20comes%20to%20credit,points%20higher%20than%20Gen%20Xers.&text=%22If%20debt%20is%20being%20well,not%20tank%20your%20credit%20scores.%22