A credit rating is simple; it is used to determine if an individual will be able to meet financial obligations, judged on their previous financial behaviour. Therefore, credit ratings are significantly important to a person’s future; it will determine if a mortgage will be approved or it could even determine if someone receives a job. However, young people do not understand the significance of credit ratings and the effect it will have on borrowing money from banks in the future.
My Credit Monitor found that 75% of young people did not know their credit score before receiving their first credit card, while over 20% had to move back home to live with their parents to clear debts after they did not realize they had overspent. Young people are spending too much money on their credit cards, by either spending the maximum amount or spreading the cost of items over several cards.
Almost 18% of over 30s are continuing to pay back the money they spent when they were in their 20s and as teenagers. The survey also found young people wished for more guidance in schools about understanding credit ratings and how to spend wisely.
Banks should warn young people on the importance on using credit only when it is necessary, and how easily a person can get into debt if they do not control their spending. Also, young people themselves should not forget that credit is not free and one day will have to be repaid to the banks. Also, banks should put more control on overdraft limits and how it is decided, especially for a young person who may have their first job and do not understand the ramifications of spending too much money that they cannot afford to repay.
Overall, everyone has a responsibility to spend efficiently, to avoid accumulating debts which are detrimental to financial choices. Banks and young people should work together so all individuals involved gain by providing credit cards and repaying the money spent on the cards.
