A Gen Z Guide to Getting Started and Maintaining Good Credit Health

Gen Z accounts for approximately 26% of the total population across the world, that’s 2 billion people born between 1995 and 2012 (aged between 10 and 25 years in 2022) In fact, you’re the first generation to grow up with computers, smartphones, and the Internet.

The oldest of you are now either in college, or graduating into the workforce, so it’s time to consider how you think about money. Financial literacy at this age is a crucial life-skill to help you make the right money connections and decisions now, and later in life.

Here are 6 quick financial life-lessons for you as you get started in life, with access to your own money.

Building a Credit Profile Early, Responsibly

Many Gen Zs don’t have any credit history for a lender to examine, but an empty credit report isn’t the same as a bad one. You could avail a credit card as an authorised / secured user. This can either be as the add-on to an existing high CIBIL scorer’s credit card (a parent or older sibling’s) or a card that’s secured against a Fixed Deposit with the issuing bank. Either way, once you get the card, use it responsibly. This helps in building up your credit profile early (a secured card means a card with a set upper limit on spending) Another option is to apply for a low-limit credit card, possibly from the bank where you have your salary account or have a prior relationship.

Plan before You Apply

If your only strategy towards getting a credit card is that you want one. Wait. You should know this bit of information first. If you’ve already applied, don’t do it again before knowing this: Every time you apply for a credit card, or loan, you’re giving the bank permission to conduct a type of background check called a ‘hard inquiry’ or ‘hard pull.’ Multiple and/or frequent credit enquiries by financial institutions may have a negative impact on your CIBIL score, which is a 3-digit indicator of your creditworthiness. Your CIBIL Score and report play a key role in the credit approval process and a healthy CIBIL profile translates to easier credit access.

See What They See

You can avail 1 FREE copy of your CIBIL credit score and credit report once every calendar year. If you haven’t already looked at yours, that should be your first move. The information in it is what lenders look at to determine if you’re approved for a card or loan, and what your credit limit / interest rate should be.

All types of lenders, even employers, may examine this information to evaluate you as a prospective borrower or employee. So, knowing and managing the contents of your credit report are crucial to being financially responsible. When you’re ready and in need of unlimited access to your credit profile, a full subscription to your CIBIL Score and Report will let you access a host of added features such as CIBIL Alerts, Score Simulator and CIBIL Marketplace.

Spend Only What You Can Pay in Full

The basic rules of credit apply to all of us. If you put some or even most of your purchases on a credit card, do so only if you have the funds to pay off your statement balance in full every month. By doing this, you avoid penalties, and interest on the overdue balance.

Beware the Minimum Payment Trap

Every month, you’re asked to make at least the minimum credit card payment on your statement. Paying it keeps you afloat if you’re facing a lean period/cash crunch, but it’s a terrible long-term strategy. Because people who don’t pay their balance in full, carry a revolving debt. And those who continually pay only the minimum due, carry it for a lifetime.

Also, by making just the minimum payment every month, you end up carrying a high balance on your credit card, which increases your credit utilisation ratio. This is the percentage of your total available credit (across cards) that you're using at a given time.

Make a habit of Paying on Time

Starting out in life, especially if you’re living in rented accommodation, it’s easy to get swamped in living expenses. So, start training yourself to pay your credit bills and EMIs on time – because those are delays that have a lasting repercussion on your credit profile. If you do forget to pay, you might still avoid a dent in your CIBIL Score and Credit Report, if you settle within a month, although you will still likely be hit with a late fee and other penalties, so get into the habit of paying within your due date (Pro-Tip: calendar reminders on your phone and direct debit instructions are a major help).

Creditworthiness is one of the key factors that affect your current and future lifestyle, so optimising it early on in your financial life is essential. The actions you take today will go into your credit profile for years. And play a key role in your ability to buy a home, buy a car, and higher education.