The majority of millennials plan to purchase a home with credit, according to a recent survey of Americans and their credit behavior commissioned by BMO Harris Bank. The survey found that 81 percent of millennials will use a line of credit versus a mortgage or loan when purchasing a home, differing from attitudes expressed by the Sandwich Generation.Millennials expect to turn to credit for other major future purchases, as well. When financing their entrepreneurial goals, 63 percent will primarily use some form of credit. Millennials were also more likely to use credit when paying for a wedding (29 percent) and to finance a big vacation (32 percent).
“It’s not uncommon to use some form of credit for the major purchases in life,” said Alex Dousmanis-Curtis, Head of Retail Banking, BMO Harris Bank. “What’s most important is having a plan in place before making the purchase of how you’re going to pay it off. If it’s on a credit card, sporadic, large purchases may harm your credit score by tipping the balance on your credit-to-debt ratio, which should stay under 35 percent. Interest accumulation is another factor to consider.”
Millennials relying on credit should follow these guidelines:
- Think big picture. Credit card use is one piece of the puzzle in building your credit score. Using a loan or line of credit for major purchases also plays into your rating. Paying down these loans in a timely manner will be beneficial.
- Opt for low-rates. If you are carrying a balance on a higher rate credit card, consider moving your balances to a low interest-rate loan or line of credit, or a lower-rate credit card.
- Travel smart. Using a credit card to pay for a vacation (or part of one) can be an opportunity to build up rewards points. Certain cards will also provide insurance for travel-related mishaps, like lost luggage.
- Consolidate your debt. If eliminating the debt is not possible in the short-term, amalgamate the debt you do have to minimize interest. If you have too many cards, consider getting a line of credit to help clear the balance.
Source: BMO Harris Bank