Credit and real estate purchase: what each generation should think about
Born roughly between 1997 and 2012, Gen Zers are now considering long-term financial decisions such as home ownership for the first time.
At the same time, many are wondering whether to invest in the same big-ticket items as previous generations, like going to college or buying a car. While these larger investments may not make sense for every individual, Gen Zers don’t take financial risks in their twenties compared to previous generations. As a result, they will need to find other ways to build their credit in order to get an affordable mortgage down the line.
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If paid regularly, credit cards and other unsecured loan options can help build credit history. Without a college or auto loan, a credit card might be the only item on an individual’s credit report. The credit mix, the variety of loans in a report, often accounts for 10% of the overall credit score. By making timely payments across multiple accounts, Gen Z can show off their ability to manage balances and lines of credit — an important consideration for mortgage lenders.
But keep in mind that a more secure credit means no more spending. A credit card is a tool — it’s not a license to live beyond your means.
Millennials (or millennials) were born roughly between the 1980s and early 2000s. Between having more debt than previous generations at the same age and witnessing the financial crisis of 2008, they rent longer and buy houses later.
For millennials who might be worried about a repeat in 2008 given the economic impacts of the pandemic, it’s important to follow a financial plan. A plan gives you something to turn to when things seem uncertain, like right now. If you’ve had trouble building credit due to competing investments and financial goals, the first step is to review your credit report and understand where the gaps are.
For example, is your score low because you were unable to repay your student loan (the federal moratorium is extended until August 31)? Or have you had trouble building credit because your biggest monthly financial payment is rent and it’s not on your credit report? Increasingly, housing providers and credit reporting agencies are working together to see “broad data” such as monthly rental, utility and streaming payments land on credit reports. Consider contacting your housing or utility provider to see if they can help you report your payments to the national credit bureaus.
Born between the mid-1960s and early 1980s, Gen Xers make up about 35% of the U.S. workforce, and many are caring for children and older parents. As a result, this generation faces both new and old types of debt and can weigh milestones and competing investments. This group also bore the brunt of the financial crisis of 2008, hitting their peak earning years just as the economy was collapsing, influencing decisions about home ownership, raising children and parenting. other key moments in life.
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A Gen Xer might think that supporting their children’s college education will jeopardize their retirement in the home and place of their choice in a few years.
Taking out a tuition loan can strengthen – or hurt – your future mortgage application loan, depending on whether or not you pay it back properly. For many parents, the question is who is responsible for the loan? Is it in your name? Is it co-signed with your child or student? Are they ready and determined to repay, or if they fall behind, are you ready to absorb the impact?
Like Generation X, many baby boomers are also experiencing the “sandwich” effect. This means managing their own finances, caring for a very elderly parent, and often helping their children or grandchildren meet their financial and other needs. Pressure from aging parents will only increase as centenarians are the fastest growing demographic group in the country.
Born shortly after World War II and continuing until 1964, baby boomers lived much of their adult life in a strong economy. Overall, this group is financially stable and has a higher ability to save and spend than other generations, accounting for 70% of disposable income in the United States.
Although many baby boomers today have paid off their mortgages and car loans, they also face a changing income stream. In retirement, they may not charge credit cards as much, which could lower their credit score. After paying their bills on time for a lifetime, they might end up with a “thin” credit history. If you need credit in the future, creating a financial plan now is key to maintaining a high score.
For baby boomer retirees looking to downsize or buy a “dream home,” there are different types of loans and investments that could help. Boomers should consider using their savings to increase a down payment and then offer a shorter-term mortgage to finance the rest of the home. If another home purchase is on the horizon, it’s important to speak with a tax and financial advisor to understand the capital gains and investment implications.
Regardless of your generation, the first step is to check your credit report regularly to understand the basis of your credit score. If there are any accounts or loans that are lowering your score, plan to fix them. You can check your credit report for free every week at annualcreditreport.com.
Francis Creighton is President and CEO of the Consumer Data Industry Association (CDIA), based in Washington, D.C.