Top Tips for Teenagers Living With Credit

For many people, getting their first wage or going to university opens the door to all sorts of financial opportunities – a credit card, a new phone, clothes, tech, a car … the opportunities are seemingly endless!

However, there is the danger that it also opens the door to a lifetime of debt. A 2017 study by the Financial Conduct Authority (FCA) – the UK’s financial regulatory body – showed that 4.1 million people are in serious financial difficulty, with 25- to 34-year-olds the most over-indebted.

And the habit seems to start much earlier than that. A 2016 survey carried out by National Debtline found that just over 30% of 18–24-year-olds were in debt, owing to an average of £3,409, excluding mortgages and student loans. The debt mostly related to overdrafts and credit cards.

Clearly, the decisions you make and spending habits you develop now will have a knock-on effect for years to come.

Common things teenagers take out loans or use credit for

Top of the list of the most common reasons teenagers borrow money is probably tuition fees. Other things include cars, and specialist gear, such as computers, musical instruments, cameras, etc.

The most common things teenagers access on credit include smartphones and credit card purchases – clothes, and bigger purchases including the types of specialist gear mentioned above.

The cost is often higher, in terms of interest paid, largely because teenagers have no, or a very limited, credit history. They might also have to get a parent to stand as guarantor.

The Impact of Credit on a Mortgage Application

Chances are, you’ll want to get on the property ladder at some point, so it’s important to understand how the decisions you make and actions you take now will affect your mortgage eligibility later.

Every credit application you make or agreement you take out, every payment you make or miss, leaves a footprint that shows on your credit report. And that data stays on your credit report for six years.

While it’s true that a series of missed payments five years ago will have less impact on a mortgage application than the same number of missed payments five months ago, it still has an impact. And it could be costly. The high street lenders are likely to turn down such an application, and while it should be possible to get a mortgage elsewhere, the chances are that it will be a more expensive option, in terms of interest rate and fees.

Top Ten Tips to Manage Finances and Credit

1. Set a budget

There is nothing more depressing than finding out you have too much month for your money. The way to avoid spending the last week at home, in the dark, eating value cornflakes, while all your friends are out having fun, is to budget. Three simple steps will get you started:

1. Add up everything you have coming in – that’s your income.
2. Make a list of everything going out, including bills, money for food, transport, etc. – that’s your outgoings.
3. Deduct your outgoings from your income, and what you have left is your disposable income. Don’t spend it all in the first week!

2. Know how to generate more money when you need to

There are two ways you can make sure you have more money: you can earn more, or you can spend less. If things are tight, see if you can take a job (or a second job) even if only for a short period of time. You should also cut out non-essentials for a while.

3. Seek out bargains

Take advantage of special offers, to save money. Share “buy one, get one free” offers with a friend, so you both get something half price. Use coupons, student discounts and anything else you qualify for. They all help you make your money go further.

4. Allow a cooling off period when considering big purchases

If you see something expensive and immediately covet it, don’t buy it straight away – allow yourself a 24-hour cooling off period. That gives you the chance to be sure you really want it – and also to be sure you can really afford it.

5. Set some financial goals

Take some time to consider what you want out of life, in the short, medium and longer term. Chances are, whatever it is – whether travel, possessions, or a house – you will need to save up for it. Work out how much you will need, and by when, and then plan to be able to afford it. And don’t forget pension planning – you can’t start too soon!

6. Realise debt doesn’t have to be bad

Buying on a credit card might mean you can snap up an amazing bargain that you’d otherwise have to walk away from – just make sure you pay it off as quickly as possible, and that the interest you pay isn’t more than the saving you made. There are types of debt that can save you money, such as interest-free offers on credit cards. And if you do pay interest on a card or a loan, make sure you pay the least possible. Finally, always pay your bills on time, to avoid penalty charges.

7. Get into the habit of saving regularly

This is a terrific habit to establish. No matter how small the amount initially, start putting something away, whether every week or every month. Build it into your budget and treat it as seriously as you would paying a bill.

8. Work on establishing a good credit history

To do this, you need credit agreements – and in this day and age, they’re hard to avoid, even if you wanted to – and to handle your affairs responsibly. Set up as much as you can on Direct Debit, so payment is taken care of automatically. If you have to initiate a payment – for a credit card, for example – don’t play Russian roulette with the due date. The payment should be provided for in your budget, so pay it as soon as it comes in. Also, make sure you’re on the electoral register.

9. Accept responsibility if you get into financial difficulty

If you do get into trouble with your finances, be proactive about sorting it out. Get in touch and explain the situation – you won’t be the first and you won’t be the last, and there will be procedures in place to help you cope. Whatever you do, don’t ignore letters and phone calls from your creditors (the people you owe money to). The longer you leave it, the worse it will get.

10. Get advice from specialists

If you’re really stumped, or in a complete mess, or can’t face talking to your creditors yourself, get some specialist help. There are organisations that can give you great financial advice and even those that will speak to your creditors on your behalf.

We can help!

If you’re looking for your first mortgage and hitting a brick wall, get in touch. We have experience of helping people with either no credit history or a relatively short and perhaps less than perfect credit history, to find the perfect mortgage for them.