Millennials are having a hard time getting low-cost loans, but for a frustrating reason. Millennials are financially cautious. Even when their finances are in order, they are debt-free, and they are able to set aside money for down payments, their cautiousness sometimes comes back to bite them. See, they take out fewer things on credit and that means they have fewer credit accounts. Unfortunately, conservative borrowers are seen as riskier, because there’s less evidence that they can take out and repay a loan.
Staying Out Of Debt Should Be A Good Thing, But…
What happens is that these young adults who have been staying out of debt have less credit history and so they end up with higher interest rates when they do eventually apply for a loan. Sometimes, they are even denied credit for larger purchases, because they have not had a credit card and have almost no credit history.
Punished for Prudence
In an unfortunate punishment for their prudence, millennials are seen as far less creditworthy than they probably actually are. Unlike older generations, having fewer lines of credit and fewer debts in their credit history doesn’t equate to fewer assets or less income for millennials. They’ve just been good at keeping themselves out of debt and not buying things until they can actually pay for them in full.
Three Active Credit Accounts Will Help
Millennials need to know that for now, they should shoot for having three or more active credit accounts. People with fewer than three active accounts are considered riskier. They’ll be offered lower loan amounts and higher interest rates if they get approved. Millennials considering buying a home should check their credit scores. They should consider opening three lines of credit and occasionally using these lines of credit.
Saving Ten Dollars In Interest Could Cost You Thousands In Interest
Even if you plan on purchasing a power tool or appliance with cash at Lowes, if you have no lines of credit, it is absolutely worth it financially, in the long run, to get a Lowes credit card and pay it later with the money you set aside. For example, even if you do end up having to pay an extra ten dollars in interest for a new vacuum or a new microwave, having this line of credit could end up saving you thousands in interest when it’s time to buy a home.
Most experts feel confident that lenders will come around to understanding this new generation and change the metrics of measuring their creditworthiness, but for now, millennials who want in to a home soon should consider accepting that credit card offer with the ridiculous interest and paying for something they already have the cash for with a new line of credit.
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