Remember that high school class you took on what is a good credit score range and how to build your credit score?
No? Of course you don’t remember. You didn’t take such a class.
Unfortunately, this kind of education isn’t normally offered in high school.
In fact, according to research released by Credit Karma and Qualtrics, only “one-in-four (28 percent) [young adults] had received any type of personal finance education before college.”
According to the same research, “68 percent of Americans made at least one major Credit Fumble before turning 30, with every form of major mistake common among people in their 20s.”
Um, double yikes.
What’s a Credit Fumble™? According to Credit Karma, it’s “the phenomenon where young adults, new to credit and many without any financial education, make largely avoidable financial mistakes.”
These credit mistakes could lead to years and years of consequences. It might be more difficult to get access to credit or services that depend on credit scores to price their services or qualify people for access to their services.
3 Credit Mistakes Young People Make
Today, I’d like to go over some of these credit mistakes so that you can avoid them and/or teach your kids to avoid them. These are some serious mistakes. Let’s do our best not to fumble the ball, people!
1. Racking up credit card debt that isn’t paid off within a year.
This is one Credit Fumble™ you should never make. Unfortunately, according to the research by Credit Karma and Qualtrics, over “half of young adults (54 percent) racked up debt on their credit cards that they were unable to pay off within the year.”
Credit cards might help you build up your credit score, but if you hold debt for an extended period of time, it’s going to hurt you.
While holding onto debt for just a few months might not do much damage to your credit score, you might want to reconsider holding debt longer than a month. Why? Well, my point has nothing to do with your credit score, my point has everything to do with making sure you don’t get into the cycle of debt that plagues so many Americans.
I recommend that you pay off your credit cards every month. And don’t use your credit cards unless you know you can afford to do so (that’s how you avoid this problem).
2. Missing payments on a credit card or loan.
This one is bad, really bad.
According to the research by Credit Karma and Qualtrics, over “forty percent of young adults either missed payments on a credit card or loan (47 percent) or had an account sent to a collections agency because they were unable or unwilling to pay their debt (44 percent).”
It’s a whole other level of bad news when you miss your credit card or loan payments. Sure, if you can’t pay the normal amount, you can’t pay the normal amount. But that doesn’t mean that you should just sit back and do nothing!
Call your credit card or loan company and see if you can negotiate lower, minimum payments so you can remain in some good standing with the company. Then, make sure to actually follow through on your commitments and meet (or exceed) the expectations of the company.
Sometimes, people just give up on their bills when they look at the total. Don’t do that. Proactively try to negotiate lower payments.
But don’t stop there. Once you actually have the funds to make higher payments, do so! Don’t let debt sit around like it owns you or something. Kick it to the curb!
3. Defaulting on a loan.
Look, there’s a ball of fire rising into the stratosphere!
Okay, maybe that’s a little dramatic. But seriously, defaulting on a loan is one of the biggest credit mistakes you can make. And, unfortunately, a lot of young people have made this one . . . .
According to the research by Credit Karma and Qualtrics, “one-in-four consumers had defaulted on a loan before they were 30 (26 percent).”
This just keeps getting worse and worse. Again, the solution here is to not take out loans in the first place that you can’t pay off. Another great solution, again, is to call your credit card or loan company to negotiate some reasonable payments.
The Devastating Effects of These Credit Mistakes
You might be saying to yourself, “Well, it’s not so bad if I – or my kids – make one or two of these mistakes.”
.According to Credit Karma and Qualtrics, an “overwhelming majority (75 percent) felt that defaulting or having an account sent to collections had a negative impact on their quality of life. Roughly one-quarter of people who made a Credit Fumble had to move back in with their parents (26 percent), while slightly more than one-in-four had to move into a cheaper apartment (27 percent) and over one-in-five sold possessions.”
Moving back in with parents, moving into a cheaper apartment, and selling possessions . . . these don’t sound like fun activities to me. I’m sure you feel the same way.
Unfortunately, the bad news doesn’t end there. According to the same research, 61 percent of those who defaulted or had an account enter collections are declined for a credit card. Plus, 31 percent of them cannot get a loan approval for a car and 16 percent of them were not approved for a mortgage.
These consequences are felt well past one’s 20s.
That’s why it’s so very important to make sure you take some steps right now to ensure you or your kids get on a solid financial path – a road that leads to financial success instead of credit mistakes.
Simple Steps to Avoid Credit Chaos
Here are a few things you can do to further avoid credit mistakes.
1. Take a look at Credit Karma’s article.
There, you will learn more about these fumbles and get to dive into some additional key facts. There’s also a lot of educational content over at Credit Karma, so I encourage you to take a look.
2. Get on a budget already!
I’ve said this time and time again, but it might need repeating: get on a budget!
A budget will save you from overspending on your credit cards and it will help you be realistic with your finances. Spending aimlessly is a highway to making a credit mistake. Don’t go there.
3. Take a look at my resource for young people.
Whether you’re entering college, in college, just out of college, or in your 20s, you can probably benefit from reading my resource page called Just Out of College. Parents, this is a good one for your young adult kids!
I’ll show you how to deal with your student loans, save your own skin by setting up an emergency fund, and even show you how to save for retirement (while time is still on your side).
4. Take a look at Credit Karma’s tools.
Credit Karma gives you free credit scores, reports, and monitoring. It doesn’t get much better than that!
See what Credit Karma has to offer and take charge of your credit today.
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