With the remnants of Hurricane Wilma swirling around outside, I was inside one of the ballrooms of the Sheraton hotel in Dover, Delaware, talking about money and credit to more than 225 high school kids and their instructors.
The program was run by the Delaware State Treasurer’s office and the Delaware Money School.
While these Delaware teenagers knew plenty about spending money, and even some tips about saving it, when it came time to discuss credit histories and credit scores, they were about as lost as the average American.
The difference between the Generation X and Generation Y is simply this: Today’s teenagers and toddlers will never have a time when their credit scores aren’t the most important number of their financial lives.
Instead, it has become routine for insurers, and financial companies to pull copies of credit histories and credit scores before deciding how much to charge for premiums or loans. Research has shown that Americans with lower credit scores have a higher chance of getting in an auto accident and making a claim.
Low credit scores equal more expensive customers, so the premium has to go up as well.
Even when the job does not include managing or handling cash, employers are pulling credit histories and credit scores before extending a job offer. The thinking here is if you can’t manage your own finances, you might not be able to handle the responsibilities of the job.
While it may sound ridiculous to judge people by a 3-digit number, that’s the society in which we live — and the trend seems to be growing.
Experian (Experian.com), one of the three major credit reporting bureaus, announced in October that it has provided 40 million credit scores to its customers.
How do you explain to kids that every financial transaction they make, whether it is a purchase, opening up a credit card, or making monthly payments on a home loan, is mathematically weighted and then crunched together to form a three-digit number?
Big brother isn’t just watching you, he’s tattling to creditors about every financial move you make. And, he has a very long, digital memory.
Supposedly, you can’t have a credit history or credit score until you reach adulthood, which is age18. At that time, your mailbox will begin filling with offers from credit card companies offering all sorts of enticements: free miles, free gas, or cash back.
How teens handle that first piece of credit is important. Open up the right line of credit, make your payments on time, pay off your balance each month and you’ll be batting close to 1.000.
But even one late payment can drop your batting percentage faster than hitting a pop-up fly ball. Can you imagine what would happen to your credit score if you fall behind in your bills and your car gets repossessed?
During the day-long seminar, Delaware State Treasurer Jack Markell encouraged these students to take notes, think about the information and then share it with their parents. If you can change how even one family thinks about payments and credit, you may be able to prevent someone from being taken advantage of by a predatory lender — or even eliminate a future bankruptcy.
At 18, you get a blank slate on which to write the credit history of your dreams, or nightmares. It’s a lot easier to keep batting 1.000.