Millennials have had a difficult time establishing financial security. Many of them came of age during the housing crisis and subsequent recession, saddled with excessive student loan debt and a shrinking job market. The slow recovery from the Great Recession kept Millennials at a disadvantage – and a new study from Experian shows that they are still feeling the aftereffects.
Experian's data shows that Millennials have the lowest average FICO credit score of all generations that have had significant time to build a credit score. Millennials had an average FICO score of 665 on the 300-850 scale – the upper end of the fair credit range (580-669). That's a similar score to Generation Z (ages 18-22), who have had limited time to build a credit history of any kind.
Millennial credit scores lag far behind the average scores of the Silent Generation (756) and Baby Boomers (732). The average score across all age groups was 701, right in the middle of the good credit range (670-739).
"'Millennials' are just the next generation of young adults who are beginning to understand the benefits of credit," said Rod Griffin, Director of Public Education for Experian. "As they get older, they realize more of the things they want and need require a strong credit history and that good credit scores are key to better terms and options. Hopefully they are learning this before making those bigger purchases, and not because they've failed to qualify for good terms – or not qualified at all."
A low credit score affects finances in multiple ways. It's harder for you to qualify for credit, and you pay higher interest rates for the privilege. Adam Carroll, Founder and Chief Education Officer of National Financial Educators, notes that the credit scores of Millennials can also affect "what they pay for car loans, whether or not they get apartments, and sometimes if they get the desired job offer."
If you're a Millennial with a low credit score, how can you improve your standing? Start by checking your credit report to see why your score is low. Look for any errors or signs of identity theft. Let MoneyTips protect your credit and your identity with a free trial. Address any errors or fraudulent accounts with the credit reporting agencies immediately.
Next, look for missed payments or accounts where you're nearing your credit limit. On-time payments and credit utilization – the amount of credit that you use compared to your credit limit – are two of the most important factors in calculating your credit score.
Why do people miss payments? Sometimes, people simply can't afford to make payments – but according to a 2018 poll from CreditCards.com, the main reason is that people forget. Six in ten people put a black mark on their credit report just from sloppy habits and poor discipline – inexcusable when we have so many ways to set alerts and reminders.
To get your credit utilization low and keep it there, set a realistic budget and stick to it. Use credit regularly and responsibly as part of that budget. Millennial Money Expert Stefanie O'Connell suggests tracking your expenses to verify you're spending less than you make and keep charges within your means to pay.
Millennials seem to be using their credit cards responsibly, but there are disturbing trends. As of the fourth quarter of 2018, Millennials had an average credit card balance of $5,231, compared to the national average of $6,445. However, Millennial balances increased 7% from the $4,869 average balance in 2017. Overall, the total Millennial debt load increased 11% – from $72,988 in 2017 to $80,666 in 2018.
O'Connell refers to a credit card as "just one tool in a larger arsenal of managing your cash flow." Those tools should include account monitoring tools and budgeting tools as well as spending tools to address all debts.
Millennials are recovering from a tough credit start, but continued debt and payment issues make it more important than ever for them to use all the financial management tools they can to help them control spending and debts. That's not bad advice for other generations, either.
You can check your credit score and read your credit report for free within minutes by joining MoneyTips.