Even before you reach your adult years, it pays to start learning about how to manage your finances. This will help you prepare better once you start earning your first dollars. This will also help ensure that you don’t waste your hard-earned cash on the things that don’t really matter.
These days, young adults belong to Generation Z. They are the youngest generation in today’s workforce and are starting to realize how important financial education is. If you belong in the group, the earlier you learn how to take good care of your personal finances, the easier it will be for you to achieve financial freedom in the future.
This is usually the time when you start having and using credit cards. It becomes important that you learn everything there is to know about your credit score. But aside from the basics, there are other credit score facts all Gen-Zers ought to know before it’s too late.
Your Education Won’t Directly Impact Your Credit Score
Some people think that virtually every important aspect of their background can affect their credit score. In Singapore, this is true with your loan history, payment history, and even your personal finances. But know that your education or degree won’t influence your credit score.
When applying for a personal loan, they might not check your educational background. They don’t care about your degree or if you even finished college. What they want to ensure is that you have the ability to pay off the loan.
Education doesn’t have a direct link to your credit score. But it may affect your creditworthiness instead. This means your credit score can impact your chances of defaulting on your debt obligation.
Let’s say you used a student loan to be able to finance your college. This usually means you have a high debt-to-income ratio. Failure to pay your student loans on time can reduce your creditworthiness, which lowers your chances of getting approved for future loans.
Your Employers Can Check Your Credit Report but Not Your Score
Many employers would screen their applicants to ensure that they get to hire financially-responsible employees. This is especially true when hiring for positions that involve handling money. But know that they can only check your credit report and not your credit score.
People often get confused about credit scores and credit reports. The basis for your credit report is your credit score. But your credit score is not your credit report.
A credit report can only come from credit bureaus. This refers to all of your credit activities, what your current credit situation is, and your creditworthiness as a borrower. Your credit score, on the other hand, is a number used by financial institutions to grade or rate your financial health.
Your Credit Score Can Influence Your Committed Relationships
You might not think much about your credit score and your significant other’s credit score. But in reality, this can influence your relationship in more ways than one. Getting married alone won’t influence your credit score.
The problem starts once you start sharing a credit account or when you co-sign a mortgage. Failure to pay joint credits on time can affect both of your credit scores. That is why it becomes crucial to think things through and practice good credit habits if you enter a joint credit with anyone, even your spouse.
According to a study, the closer a couple’s credit scores are, the more likely they are to stay together. The study also shows that the bigger the gap is between your scores, the higher your chances to separate. The more problems you encounter with joint credits, the more likely it can affect your relationship.
Canceling a Zero-Balance Credit Card Can Be a Bad Idea
So you managed to pay off your credit card and plans on canceling it now. This is your way of staying away from the temptation of using the card again for impulse buys. But if you plan on building your credit score, you are better off keeping it open.
Canceling a card, even if it is now a zero-balance card, can hurt your score. First, this can shorten your credit history age. Remember that the longer an account is kept open and active, the better it can do for your score.
Another reason to keep your card is to keep your credit utilization ratio lower. Credit utilization ratio refers to the total amount of available credit balance on all your accounts divided by your total credit limits. The longer you keep your card open, the lower your credit utilization ratio and score will be.
These are but four things every Gen Z needs to keep in mind. Knowing many things about credit scores and how they work will give you a chance to get a better financial position. Use these to boost your score and improve your creditworthiness. This will greatly help you in the future once you need additional funds for bigger purchases and investments, such as starting your own brand.