How Financial Prudence Is Costing Millennials

Millennials, in general, are lacking in credit, but it’s not because they don’t have the means to buy things. It’s the opposite, actually. Millennials, in general, don’t take on unnecessary debt. With the exception of college loans, they simply wait until they can pay for something before they buy it. That’s what we’ve been telling them to do. Unfortunately, this prudence is costing them in a big way.

When they finally go to take out a reasonable loan, like for a mortgage, their interest rates are high and their loan approvals are for much less than they could reasonably afford. See, lenders look at a person’s credit history and if there’s not much there, they see this person as a risk. Conservative borrowers have less proof that they can repay their debts.

We’ve all heard that staying out of debt is a good thing. After all, why pay interest on something when you can pay for it in full and save that money. Here’s the reason: Paying a tiny amount of interest on a five hundred dollar item now could save you thousands when you take out a mortgage. Establishing a credit history is imperative for getting the best rates.

Lenders want to see three active credit accounts. So, that paid-off student loan that is closed won’t count as much as a low balance on a credit card that is active. Three accounts or more should be the goal. Having at least three active lines of credit in which the available credit is high and the balance is low is seen very positively. This young, prudent generation needs to know that building a credit history is being financially prudent, just in a different way.

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