Good credit scores can help insurance rates, but millennials are avoiding credit
September 8, 2014
A strong credit score can go a long way when it comes to buying a home or an automobile. It can also greatly help a person land the right kind of insurance policy, according to Jeanine Skowronski, credit analyst at Bankrate.
“The responsible use of credit cards is one of the easiest ways to build a strong credit score, which is essential for qualifying for insurance policies, auto and mortgage loans, and sometimes even a job,” Skowronski said.
Sixty-three percent of millennials don't have a credit card.
Yet, according to a recent report from Bankrate, many millennials don't even have a credit card and aren't building strong credit scores to make a difference when applying for auto and home insurance policies.
In a survey of 1,161 respondents, Bankrate reported 63 percent of millennials do not own a credit card. That's especially high when compared to adults 30 and over, as only 35 percent of the older demographics do not own a credit card.
Why are millennials shying away from credit?
Two women in their mid-20s told Bankrate they never felt compelled to take out a credit card.
“I don't really feel like there's a need for one in the way I live my life,” Melissa Pileiro, 24, told Bankrate. “The idea with a credit card is you're essentially putting money down that you don't have.”
Nebraska resident Erin Duffy, 27, shares a similar belief. Duffy said she's never had or even wanted a credit card after her parents told her the pros and cons of owning a charge card.
“I've been able to get along without it,” Duffy said. “I've liked being able to pay for things as I go, not having to worry about missing a bill.”
Others are more concerned with steering clear of debt. Millennials grew up during the burst of the housing bubble and the Great Recession. They've seen firsthand how difficult it can be to come back from falling into the red, as some have seen friends and families go underwater on their homes during those trying economic times.
Meanwhile, others graduated from college when there was little job growth, leaving them with expensive student loan debt and barren job opportunities. The Project for Student Debt reported student debt climbed an average of 6 percent each year from 2008 to 2012. College students who graduated in 2012 are faced with an average student loan debt of $29,400.
“(Millennials) grew up in a world where the economy was tanking,” David Pommerehn, senior counsel with the Consumer Bankers Association, told Bankrate. “There was great concern about jobs and debts and paying off bills.”
Skowronski agreed. She said steep student loan debt is likely making millennials ever more vigilant of falling into any potential debt.
Millennials with credit are setting poor standards
Credit cards and millennials just don't seem to be on the same page. While the majority of millennials avoid credit cards, the ones that are using them don't seem to be staying on track when paying their bills.
Bankrate reported millennials are the least likely age group to pay off their balances in full each month, as only 40 percent do so. Comparatively, 53 percent of adults 30 and older completely pay off their bills each month.
Millennials are also the most likely age group to completely miss payments. Three percent of 18 to 29 year olds claimed they frequently miss their monthly payments in-full.
“Millennials may think they're staying out of financial trouble by forgoing credit cards, but they're actually doing a disservice to themselves and their credit scores,” Skowronski said.
According to Insurance Journal, homeowners with poor credit pay 91 percent more for homeowners insurance than people with excellent credit.