How credit and debt fall between the generation gaps
(ARA) - Different tastes in music and varying perspectives on history aren't the only factors that define the gaps between the generations. A new credit trends study shows that the generations also differ on how they handle credit and debt.
Members of the Greatest Generation (Americans older than 66) have the highest average credit score, 820, according to the study by Experian. The average score for Generation Y (ages 19 to 29) is 672. While 148 points separate their average scores, the two groups are much more closely aligned in the relatively lower amount of debt they both carry. Conversely, baby boomers (ages 47 to 65), and members of Generation X (ages 30 to 46) carry much higher debt loads, the study shows, and just 64 points separate their average scores of 782 and 718, respectively.
"While 'generation gap' is a common term when referring to topics such as music, fashion, culture and politics, the study reveals that age groups manage their money and debts quite differently as well," says Michele Raneri, vice president of analytics for Experian. "This study shows that baby boomers are steadily pursuing the American dream, while Gen Yers are starting to build their credit through student loan and auto payments. Gen Xers are dealing with the highest debt and the Greatest Generation is reducing its overall debt."
The generations also differ in their average amount of debt. Not surprisingly, Gen Y has the lowest average debt: $34,765. But their closet age group, Generation X, has the highest at $111,121. Baby boomers and the Greatest Generation have average debts of $101,951 and $38,043, respectively.
The composition of that debt has some interesting similarities and startling contrasts among the generations. A first mortgage constitutes the largest percentage portion of debt for all four generations. However, while second mortgages are the second largest percentage of debt for members of the Greatest, baby boom and X generations, student loans occupy that spot for the Y generation.
"No matter your life circumstances, establishing and maintaining a positive credit history is more important than ever," says Raneri.
The credit experts at Experian offer some advice that can be valuable to all generations:
* Paying your bills on time is the single most important contributor to good credit. Late or missed payments negatively affect your ability to get credit.
* A strong credit history can affect your ability to get a job, qualify for an apartment rental, or buy your first car or house. Since length of credit history is a factor in calculating credit scores, it's important for Gen Yers to begin establishing credit as soon as possible.
* A variety of types of accounts and low utilization rate over a longer period of time will help you qualify for larger lines of credit at better rates.
* Thinking of making a major purchase on credit? You need to demonstrate stability in the three to six months leading up to the purchase. Avoid big credit moves, such as opening or closing accounts or moving large amounts of money around.
* Be sure to review your full credit report on a regular basis (and especially before major purchases) and fix any errors. If you come across any inaccurate information, the fastest way to get it corrected is online through the credit reporting company that provided your credit report. Creditors are allowed 30 days to respond to any claims, but many times, the dispute can be resolved before then.
* As you reach midlife, you should shift your focus to paying down major purchases (such as a mortgage) and saving for retirement. While consumers of all ages should aim to live debt free, it is even more important the closer you get to retirement age.
* Older Americans should remember to stay engaged with their credit histories. Some people stop opening accounts or using credit on a regular basis as they age, which means they aren't checking up on their credit histories as often. This can make older generations more vulnerable to fraud.
"For all consumers, establishing and maintaining a positive credit history is an important step in achieving financial goals," says Maxine Sweet, vice president Consumer Education, Experian. "At any age, paying bills on time is the single most important contributor to good credit."
To learn more about managing credit, visit www.livecreditsmart.com.