Everyone needs a good credit score to achieve their goals and dreams. Your credit score is crucial to your financial health and touches more aspects of your life than you might realize from employment to housing to insurance and utilities. Recent data shows that Millennials are struggling with credit score woes that are affecting their lives in significant ways.
Fact: Millennials have lower credit scores than other demographics
Data from TransUnion shows that 43% of Millennials have subprime credit scores compared to 20% of Boomers with low credit scores. The credit bureau attributed the comparatively lower credit scores to three factors:
- Less lengthy credit history
- Opening too many new lines of credit
- Higher credit card utilization
A recent survey by lender OppLoans found that 46% of Millennials feel their credit score is “holding them back.” Some of the negative outcomes from their less than desirable credit scores, according to OppLoan’s data include:
- 27% reported they couldn’t buy a new car
- 26% got turned down for new lines of credit
- 14% still live with roommates rather than on their own
What’s the cause?
If you’re a Millennial struggling with low credit and limited financial opportunities, you need to pinpoint the cause. You might assume your earnings are the problem, but even those with a lower income can have good credit if you’re making appropriate financial choices. According to LendEdu, there’s pervasive lack of understanding of what drives credit scores.
Shockingly, the lender found that 10% of Millennials believe that their credit score is a “number assigned to them at birth” while another 5% think it’s a “number to track their position” on waiting lists to get credit cards. One-fourth of those surveyed admitted they never learned how to build good credit. There’s a disconnect in financial education.
Some of the misinformation Millennials hold as fact about credit utilization include:
- Almost 50% think increasing credit utilization boosts credit score
- Almost 40% believe maxing cards and paying them off on time helps
- Less than 18% knew that decreasing utilization boosted credit rating
Tips for Millennials looking for a higher credit score
Some Millennials need help learning to get and maintain good credit. If you’re a Millennial struggling with a middling (or low) credit score or know a Millennial who needs help improving their FICO, check out these tips.
There are tons of free online financial education classes and apps designed to teach you the basics of credit. Once you have baseline knowledge, you can move on to more sophisticated credit improvement techniques.
Automate your payments
Late payments are a primary crippler of credit scores. By setting up auto-pays, you’ll never run late. On-time payments represent a positive credit history that represents 35% of your credit score. Even one late payment can wreck your credit score.
Don’t max out credit lines
Never exceed 20-25% of credit utilization to shield your credit score from a hit. If you must max a card, pay it down ASAP. Total balances owed divided by total credit lines across all accounts equals utilization. This factor can change rapidly month to month.
Build a buffer
One of the top drivers of a financial crisis (and dropping credit scores) is lack of a safety net. Many Millennials don’t have an emergency fund and use credit cards instead. Even a small $500-1k rainy day fund can prevent a misstep that dings your FICO score.
Building good credit can be hard going. But if you start out now, you can get well on your way to securing your financial future. To find out more about boosting your credit score, check out Credit Score Keys.