Solve poor credit score of millennials: Tips from genX and boomers

A credit score is vital. It showcases a person’s creditworthiness. It’s fundamental for every generation - boomers, gen-x, and millennials. It’s quite commonly seen that the millennials have poor credit scores as compared to the gen-x and the boomers.

According to a new study from Experian, millennials have the lowest average credit scores. Millennials (18-34 year olds) have an average score of 625, whereas, the gen-x (35-49) owns an average score of 650 and the boomers and the greatest generation (with a combined age between 50-87) have an average credit score of 709.

Michele Raneri, vice president of analytics and business development at Experian, while talking about millennials, said that “It’s important to keep in mind that credit scores are built on credit experiences.” A report released by the Experian reveals a statistically relevant sample of anonymous data from its consumer credit database.

Snapshot of credit characteristics by generation (including national averages)

Why do millennials have poor credit scores?

Millennials have the lowest average credit scores than the other two generations. This generation is a “go get generation.” They don’t think deeply. They are whimsical. These characteristics often earn them poor credit scores. Check out the bullets below to know why millennials have bad credit scores:

• Frequent use of credit cards
• Not paying bills on time
• Keeping huge balance on credit cards
• Not paying student loans
• Excessive purchase
• Piling up credit card debts
• Not checking credit reports regularly
• Applying for multiple credit cards
• Closing old good credit accounts

Poor credit scores? Learn from the gen-x and the boomers

It has become a common notion that millennials are not good at handling their credit. On an average, they acquire poor credit rating as compared to the other two generations (GenX and boomers). Credit score can be improved at any time. However, millennials can learn the ways to improve credit score from the other generations. Here are the ways to improve credit scores:

1. Pay bills on time - Payment history is an important factor which determines the credit score. Late payments ruin credit score. Whereas, timely payments will help the millennials build their credit.
2. Check credit reports frequently - To improve credit scores, it’s important to check credit reports on a regular basis from the three credit bureaus - Equifax, TransUnion, and Experian. Checking credit report regularly doesn’t hurt the credit score. Rather, it’ll help millennials to find out the errors which are causing a downfall to their credit score.
3. Use secured credit cards - Often millennials don’t get approval to open a credit account. In that case, a secured credit card is the best option to create a solid payment history, if payments are made on time.
4. Keep low balances - Higher credit balances, if not paid on time, can cause a big damage to credit score. Keep balances under 10% of credit card limits to increase credit score.
5. Don’t sign for joint credit products - Signing for joint credit products can be fascinating and dangerous at the same time. Signing a joint account or a lease for someone else, can cause a damage to the credit score, if the person fails to pay on time. Millennials should be cautious of what they are signing, especially if they are signing for someone else’s payment.
6. Build an emergency fund - It can be a savings account. This can help stop unexpected expenses from a credit card in case of any emergency. Having no emergency fund will automatically put pressure on the credit cards in case of urgent needs. This can deteriorate credit scores. Build an emergency fund to avoid damage to credit scores in case of a crisis.
7. Improve “credit utilization ratio” - Credit utilization ratio can be improved by increasing available credit or getting another credit card. A low credit utilization ratio results in a higher credit score and vice versa.
8. Purchase small things on credit cards - Making small purchases on credit cards will help to pay off the balance before the due date. This keeps the credit utilization ratio low and establishes good payment history, which in turn improves credit score.
9. Avoid applying for multiple credit cards at one time - Each time an application is made for a loan or a credit card, a hard inquiry is made, which negatively affects the credit score.
10. Pay student loans on time - Millennials should start repaying their student loans as soon as they get their first job. Due payments, late payments and defaults have an adverse effect on credit score.
11. Use credit cards to buy affordable things - Millennials should use their credit cards to buy things which they could afford. Buying an unaffordable thing with a credit card will automatically rack up credit card debt. In turn, this will damage the credit score.
12. Avoid carrying a credit card balance - Carrying a balance on credit card automatically lowers the credit score. This also increases the possibility of missing out credit card payments.

The last lesson

To have a better credit score, it’s important for the millennials to take the responsibility of their financial life as early as possible. Understand the do’s and don’ts of maintaining a good credit score early. In case of any confusion, follow the above footsteps of the gen-x and the boomers to build an excellent credit score.