There are troubling signs of a crisis brewing around financial wellness. As industry leaders look to combat consumer fears over finances, it's critical we set up education and services that center around credit and give people the keys for long-term success.
Almost half of Gen X have more credit card debt than savings. The average national credit score has dropped for the first time in a decade and credit card delinquency rates continue to rise. Those who are living paycheck to paycheck and those left out of the financial system altogether feel this pressure most profoundly. The common denominator of this crisis is credit. However, it also happens to be an antidote, providing the upward mobility so many seek.
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Nearly 100 million people in the U.S. have low or no credit. Credit is the foundation for financial well-being. It allows you to say "yes" to important moments—like buying your first car or owning a home—and it makes all the difference in the insurance you get, the amount of your apartment rental deposit, and loan approvals. Recent Experian data shows someone with a credit score of less than 600 would see 19 percent used car loan rates, while someone with a high 600 or 700 score would see rates around 9 percent. Simply put: It's expensive to have bad credit.
The role credit plays in our lives is an often overlooked part of financial education: You can't get the credit you deserve without understanding why it matters. We recently surveyed Self Financial customers working to build credit and 45 percent said most of their financial education came from learning from their mistakes. Additionally, 72 percent said their financial education was nonexistent or insufficient. Looking to future generations, we must do better to provide guidance, inclusive of credit, to improve the chances of achieving long-term goals.
The catch-22 is that you need credit to build credit. Luckily, there are more credit-building opportunities than ever. One trend gaining popularity is rent reporting, which enables consumers to use rent payment reporting to build credit. A recent TransUnion study found that 80 percent of those who had their rent payments reported to the credit bureaus said their scores increased as a result.
Financial wellness plays a critical role in our overall well-being. If you're one of the many struggling financially, know you're not alone. There are organizations like Operation Hope, National Foundation for Credit Counseling, and Association for Financial Counseling & Planning Education® that provide free or low-cost financial counseling. No one's financial future should be defined by their mistakes or lack of education. Credit is a key that opens doors to financial wellness, and ultimately, your life goals and well-being.
Julie Szudarek is the CEO of Self Financial, a credit building fintech company that makes credit accessible to U.S. consumers with low or no credit. She has 20 years of experience building, growing, and scaling global businesses and expertise leading highly-regulated and mission-driven companies that have customer empathy at their core. She lives in Chicago with her husband and three children.
The views expressed in this article are the writer's own.
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