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Gen X Renters Have Poorer Access to Credit than Homeowners

Gen Xers are in their peak earning years — meaning it’s never been more vital for this generation to manage their finances well to create a strong financial profile and foundation for the future.

Homeowners of Gen X hold an asset that will hopefully be a meaningful source of wealth, but for those who are renting, it might be a good time to consider whether homeownership could improve their financial prospects.

With that in mind, LendingTree looked at how the credit profiles of Gen Xers who own homes, compared to those who do not. We analyzed the credit records of more than one million Gen X users on the MyLendingTree platform to find out.

The first step to homeownership is a strong credit profile, and our study of Gen X finances found that renters have meaningfully weaker credit profiles. Although renters carry less debt, homeowners appear to manage their obligations better — accounting for lower delinquency rates and higher credit scores.

Key findings

  • Gen X homeowners have stronger credit profiles than renters. Homeowners have a median credit score of 672, compared to 586 for non-homeowners. This is not surprising, as higher scores make homeownership more accessible. On-time mortgage payments also boost credit scores beginning about a year after the home purchase.
  • Homeowners have a median of nine financial accounts compared to just four for non-homeowners. This reflects the higher credit scores of Gen X homeowners as they are able to obtain more credit accounts. Many renters may face difficulty accessing credit due to their lower credit scores.
  • Just 67% of renters have a credit card balance, compared to 91% of homeowners. Homeowners tend to borrow more, even in non-mortgage categories. They have a median balance of $8,480 in credit card balances compared to $2,950 for renters.
  • Renters’ median utilization of their available credit is 58%, more than triple the 18% for homeowners.
  • 71% of homeowners also have an auto loan. They owe a median of $21,120, compared to $16,737 for the 53% of renters with an auto loan.
  • The student debt burden is roughly even between Gen X homeowners and renters. In student loans, 28% of homeowners owe a median of $28,557. Renters are only slightly lower, with 27% carrying student loans with a median of $28,203.
  • 40% of homeowners have personal loans, with a median of $11,482 owed. This compares to 32% for renters, who owe a median of $4,774.
  • Renters have more trouble servicing their debt, with an average of 10 negative marks on their credit profiles to just four for homeowners. 87% of renters have at least one late payment compared to 55% of homeowners.
  • Renters were late on 4.2% of all payments over four years, with homeowners late on just 2.3% of payments.
  • Renters also search for new credit more often, with an average of 2.3 inquiries over the past 6 months compared to 1.6 for homeowners.

What should consumers know about homeownership, renting and credit scores?

The largest drivers of the difference in average scores between homeowners and renters are late payments. Renters as a whole perform more poorly in this area. Though homeowners carry far larger balances, they are using a lower proportion of their available credit — in part reflecting their better access to credit.

Whether you are a homeowner or a renter, there are steps you can take to improve your credit. If you are renter who aspires to homeownership, raising your credit score will increase your options in terms of the types of loans you can access. Borrowers with higher scores also get lower interest rates, which lowers the monthly costs of a mortgage and means you pay less interest over the life of the loan. For homeowners, increasing your credit score could give you an opportunity to refinance your mortgage at a lower rate. For both renters and homeowners, here are some strategies to influence the five components that make up a credit score.

Payment history

Work on avoiding late payments. The best way to do this is to avoid getting overextended when you are accessing credit, and to manage your recurring costs — such as housing and car expenses — to a low percentage of your monthly income. Some good rules of thumb are to use no more than 30% of your income on housing expenses and no more than 10% for vehicle and transportation expenses.

Credit utilization

Lower is better. In our study, homeowners are doing great at 31%, but renters have room for improvement at 58%.

Length of credit history

Try not to close old accounts even if you are not using them. This also helps keep your utilization low. Just be sure to be disciplined about not spending on the underutilized lines of credit.

New credit

Avoid making too many new inquiries, especially in the run-up to getting a new mortgage. However, once you are shopping for a mortgage, it’s OK to have multiple queries while you shop around during a short period of time.

Credit mix

Credit agencies view effective managing of different kinds of credit positively. So try to have credit that is both revolving, such as credit cards, and installment, such as personal, auto and mortgage loans.

Methodology

We analyzed the credit records of over one million Gen X users of the My LendingTree platform. My LendingTree is your smart money sidekick, analyzing your financial health to identify savings opportunities and serving up advice to help you improve your credit. Better loans and better credit gives you the confidence to do more in life.

 


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