It was only two hours into the work day, and car salesman Jeremy Bartell had already turned customers away.
Rejecting customers for low or no credit is a daily occurrence for the salesmen at O’Brien Toyota in Indianapolis, and any young recent grad could be next if they don’t prepare themselves by beginning to build their credit. Sixty-three percent of millennials ages 18 to 29 don’t own a credit card, according to a survey done by Princeton Survey Research Associates International.
“If you don’t take your credit score seriously, it impacts everything you do,” said Bill Mang, senior VP in commercial banking at Centerstate Bank in Winter Haven, Florida.
Many life milestones require established credit, and an estimated 45 million Americans may not even have credit scores, according to the Consumer Financial Protection Bureau. Here are three things you can’t do without a credit score, and tips on how to build one.
Get A Sweet New Ride
Credit score affects interest rates, car availability options and willingness for banks to finance, according to Bartell. “When you have no credit or bad credit, you get the car the bank lets you have,” he said. “Not the one you want.”
It isn’t impossible to get a car with low credit, but it comes with more costs. Someone without credit may have to pay an interest rate 6 to 12 percent higher than someone with a good credit score, according to Bartell. Much of the time, those with low credit need to provide other proof of reliability, with pay stubs or referrals, for example.
Hannah Gilfix, a college junior from Edina, Minnesota, bought her first car this past summer with the help of her parents, who co-signed on the vehicle. Having someone with reliable credit put their name alongside yours gives the bank the reassurance they need when credit is in question. Without their help she wouldn’t have been able to do it on her own, according to Gilfix. “For being at the age we are and graduating college soon and having to live on our own, I feel like most people don’t know as much as we should,” she said. “Myself included.”
Being a student or recent grad, you may be overwhelmed by the process of buying car but your position can actually help you. Making payments on student loans is an excellent way to build credit, according to banker Bill Mang, from Winter Haven, Florida, “Making payments in advance or in a timely fashion improves your score,” he said. Avoiding late payments and being on top of student loans can really put recent grads in a good place when moving onto the next step, such as buying a car.
Get A Job
Certain employment opportunities can be hindered by low or bad credit. “There have been instances in my career where I’ve looked at hiring somebody to come work at a bank, and when I looked at their credit score I wouldn’t be able to put them in the position,” said Mang. However, not only professions in the banking world are affected by this. Most positions, ranging from a bank teller to pest control, where you are providing services and collecting money from someone, are liable to have their credit run, according to Mang. If you don’t have credit history, employers may not be able to make an informed decision on whether you are a liability or a sure hire.
To avoid being turned away for lack of credit upon entering the job market, millennials can easily begin building their credit by the responsible use of credit cards. The ideal time to sign up for a credit card is during college years, according to Mang. Being timely and paying off credit card balances on a regular basis, not just the minimum payment, will build your credit score over time.
Cara Golberg, a marketing and professional sales college senior from Long Grove, Illinois, got her first credit card when she was 18. With the guidance of her parents, she knew college was the ideal time to start building her credit. “I didn’t want to be in a predicament when I needed credit and didn’t have any available,” Golberg said. Many students aren’t thinking that far ahead, but having one to two credit cards in your name at an early age will definitely benefit you when those future life moments arrive.
Move Out Of Your Parents’ House
As a young adult, you may not be ready to commit to buying a house, but credit checks are made for rentals as well. If you are ready to get out of your parents’ house and live on your own, you are going to need a credit score. It’s common for applicants to be weeded out by low credit, according to Chicago Real Estate Broker Tim Mullet. On average, he works with first-time home buyers and renters around 25 to 35 years old and a majority of the situations he comes across involve having no credit. Last week Mullet had a client who was a recent grad and was aware of her situation. “She just finished school, she was paying off her loans,” he said. “She told me ‘I don’t have bad credit, I just have no credit.’”
With renting there is more flexibility and landlords usually take into account previous landlord recommendations or letters explaining their situation. However, with buying a home, higher security deposits and excessive interest rates may be the consequence. The best advice, according to Mullet, would be to try and plan ahead for these situations. “Be proactive in educating yourself. Be proactive in understanding your situation. Be proactive in whatever you are going into,” he said. “Whether it be a house, or a car.” If you have a car in your name, car loans are one of the best ways to build credit, according to Bartell.
Good Credit Is Essential
Having any history of your credit relationships and demonstrating your ability to pay will benefit you in getting started with building your credit. Whether that be through existing student loans, credit card payments, or car loans, there are many ways to move forward and be prepared for these future life milestones. “The earlier you get started the better,” said Mang.