Millennial Credit Scores Aren’t Great—Here’s Why

We know, everyone already harps on millennials. So, we hate to give bashers any more ammo, but… millennial credit scores aren’t great. They’re not good, either. They’re actually just “fair,” according to data from Experian, a consumer credit reporting agency.

Experian’s credit system ranges from 300 (eek!) to 850 (wow!), and millennials, on average, are stuck in the “fair” category, which is a score between 580 and 669. To get specific, the average score of younger millennials (age 22 to 28) is 652, according to Experian. Older millennials (age 29 to 35) have an average score of 665.

So, why are millennial credit scores so “meh”? Better yet, what can be done to boost them—especially if the question of a mortgage is in your future? Here’s what the experts say:

One main factor is that younger people haven’t had a chance to build a robust credit history yet. Mistakes made early on—like forgetting to pay the bill once in college—might hit credit harder because there isn’t a well-established history of accounts in good standing to provide a buffer.

Another reason? Millennials tend to have lower incomes, points out Priyanka Prakash, a credit expert with Fundera, a small business financial solutions marketplace. A “Business Insider” analysis, for example, found that the gap in median income between millennials and baby boomers ranged from 25 percent in Iowa to 65 percent in Alaska.

“Due to lower income, millennials typically qualify for lower credit limits on credit cards and lines of credit,” Prakash explains.

Let’s dig into this some more: The Experian numbers found that the majority of millennials (without a mortgage) have an average income of $33,000. That’s not much, so many are likely to rely on credit for emergency situations. And let’s say your dog needs to take an emergency trip to the vet or you need a new set of tires. Since the amount of available credit you use is a major factor impacting scores, and experts say you should keep your utilization under 30 percent, those transactions alone could easily push you over the 30 percent mark on a credit card with a limit of $1,000.

However this Catch-22 won’t last forever:

“As millennials get older and earn higher incomes, we might see their credit utilization decrease and credit scores improve,” Prakash says.

Also, credit bureaus want to see consumers managing a combination of debt well, says Ashley Morgan, a debt and bankruptcy attorney in northern Virginia. While banks like to see a combination of credit cards, installment loans (car and student loans), and mortgages, Morgan points out that younger individuals are less likely to have many different types of credit.

In sum, since Millennials are holding off on buying houses because it’s harder than ever to afford one, and many are swapping car ownership with ride-sharing services, the old ways of raising credit early in adulthood are now keeping young people’s credit sort of “meh.”

You know the drill: Pay your bills on time and don’t max out your credit cards if you want better credit. But credit experts have a few more, lesser-known tips.

Pay that credit card off every month

“Borrowing money and then repaying that money back is one of the best strategies to improve your credit score,” says Steven Millstein, a certified financial planner and editor of CreditRepairExpert.com. He suggests setting up a budget that doesn’t take into account your credit card. Make sure all of your expenses are laid out. Each month, use your credit card to pay a utility bill or a cellphone bill and then pay off your credit card in the same month.

Millstein says this is a safe way to use credit to improve your score without getting bogged down with debt.

Okay, you might need to swallow your pride for this one. But, if your parents have good or excellent credit scores and always pay bills on time, you can piggyback on that by being added as an authorized user on the card, says Marshall Armond, CEO of CreditRevo.com, a credit and financial resource website.

You’ll find the most accurate information at annualcreditreport.com—the service is authorized by the government. But free credit-monitoring sites like Credit Karma might alert you if something negative has been reported to one of the bureaus. This is helpful because you can then dispute it if it’s a mistake or work with the creditor to clean things up.

Okay, I get it: Reducing debt might be part of your New Year, New Me plan. But closing out a credit card because you want to avoid spending isn’t a good idea. Your oldest credit card account has the longest payment history associated with it, and you want to keep that in good standing. When you close out credit cards you’ve paid off, it reduces the amount of credit you have available, which lowers your credit score, explains personal finance expert Janet Alvarez with Wise Bread, a financial advice website.

Millennials might also get a boost with a new score system from FICO, the most widely used credit score. In 2019, FICO will be testing UltraFico. With the system, consumers can opt to allow FICO to generate new scores based on data from their bank accounts, and get a lift if they are keeping a few hundred dollars in their accounts, preventing overdraft, and paying bills on time.