Whether reveling in the perks of good credit or drowning in the mire of bad credit, young adults must make a decision regarding which they desire. Many people expect good credit to happen overnight, but anything worth having is usually not easy to acquire. Think about building credit the same way. It is a process that takes time, effort, and patience.
Cedar Hill, Texas-based Behavioral Financial Advisor Yohance Harrison, Money Script Wealth Management CEO/Founder and former advisor at a Fortune 250 wealth management firm, sets the record straight for Gen-Z-Select readers so they are equipped with the tools moving forward to create an action plan allowing them to practice sustainable habits to achieve good, maybe even excellent, credit.
How does good credit and financial planning go hand-in-hand?
Good credit doesn’t happen on accident. To build and maintain good credit, a plan is needed. This plan must include budgeting, saving, and understanding how your credit works.
Do you find younger clients are often uniformed about the importance of a good credit score, and if so, why do you believe that is the case?
Younger individuals are often uninformed and misinformed about the importance of a good credit score. This happens due to school curriculums not teaching it and often being raised by parents who also don’t understand how to build and keep good credit.
What age can someone start to build credit?
Good credit starts as soon as you learn how to make and keep promises to yourself and to others. If you build a habit of being financially responsible, you can apply the same practice to credit building. Some teens are able to become a secondary card-holder on their parent’s or guardian’s credit cards. However, if you are irresponsible, you can ruin your own credit and that of your co-signer.
What are ways to work toward building credit?
Start by having a budget that is less than the amount of money you make. Next, if you borrow money from a credit card, or a friend or parent, pay back what you owe on time (or early). This builds good credit and personal financial relationships.
How long does it take to establish credit?
Credit is established as soon as you open a line of credit (like a credit card), or borrow money from a bank. Each month, the creditor or lender will report to one of the major credit bureaus to see if you have been holding up your end of the deal. This means making required payments on time. It only takes one month to ruin your credit; it can take years to repair it.
As a financial planner, what is your advice to clients preparing for a vehicle purchase?
Start with a budget of how much you can afford. If possible, save money to pay cash for the vehicle. If you have to borrow, only borrow what you can afford to pay back.
Is there a certain amount of income you suggest car buyers set aside monthly for a car payment?
Your total auto expenses – including gas, insurance, and maintenance – should not exceed 20% of your net income. Net means after taxes. If you have income and you are planning for a new car, consider practicing saving at least 20% of your income into a savings account for 3-6 months.
How can Gen Zers with marginal or poor credit boost credit scores?
- Start by downloading copies of your credit reports from https://www.annualcreditreport.com/
- Review the report for errors. If you find any, dispute them to the lender and the credit bureau. Use ChatGPT to determine the best letter to send.
- Pay all of your debts on time.
- Ensure none of your credit cards exceed 35% of the credit limit. The best balance to have on a credit card at the end of a billing cycle is $0.00.
What is the most common mistake you have witnessed people make involving credit?
The biggest mistake people make involving credit is ignoring it and thinking it will go away.
Please share the biggest lesson you wished you had known about credit in early adulthood?
Don’t spend money I don’t have, to buy things I don’t need, to impress people I don’t know, especially not on credit!
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