Building a healthy credit profile and solid financial footing is hard enough for any young adult. For millennials, that reality may be starting to hit home. According to new data released from credit giant Experian, millennials — people between 23 and 38 years old — recently hit a record-low credit score of 665, the lowest of any generation. An average score of 665, according to Experian, qualifies as a “fair” credit rating — which might make it tougher to qualify for credit, obtain loans at favorable interest rates, or even snag your dream apartment or job.
As daunting as improving your credit score may seem, your goals are well within reach. We zeroed in on the key areas to help millennials improve this record-low credit score and take charge of their financial futures.
Lower Credit Utilization
Experian’s recent study revealed that millennials carry an average credit card balance of $5,231, up 7% year over year from $4,869 in 2017. Carrying a high balance from month to month increases your credit utilization — also known as the amount of credit you’re using in proportion to your total available credit. That’s also a weighty factor in your credit score.
What you can do: Commit to paying down as much of your balances as you can — without charging any additional amounts to your account. If you prefer to focus on one credit card balance at a time, choose the one with either the highest balance or the highest interest rate. Set a goal not to use more than 30% of your card’s total credit limit at any given time.
One of the top reasons millennials hit a record-low credit score? Missed payments. Payment history is one area on your credit report that you simply can’t afford to neglect.
What you can do: As a tech-savvy millennial, you’re in tune with the latest technological advances. Put that power to work and automate your bill payments as much as possible. Download your credit card company’s app and sign up for alerts via email or text. Add additional reminders to your own personal Google Calendar for good measure.
Build Positive History
A lengthy, positive credit history can elevate your credit score — it just takes a while to get there. With consistent, focused efforts, your credit score will gradually climb.
What you can do: Use credit to make one or two small purchases each month, and make sure to pay the balance in full. Your responsible credit usage and repayment will be reported to credit bureaus, infusing your credit report with positive payment history.
Check Your Credit Report
Many people are shocked to learn that their credit reports don’t necessarily contain the most accurate and up-to-date information. Many millennials, saddled with student loan and medical debt, could be unaware that these debts have been wreaking havoc with their credit scores.
What you can do: Read through your report carefully and dispute any items that are incorrect or older than seven years. For even more assistance, you may want to consider partnering with a credit repair firm, which can work with credit bureaus to remove certain negative items on your behalf.
Prioritize Credit Card Debt
Overdue credit card payments will be reported to the credit bureaus more quickly than other bills — such as loan payments. So when you’re aiming to improve your credit score, your credit card bills need to come first.
What you can do: Try to pay as much of your credit card balance as you can on time every month. Even the minimum payment is better than a missed payment. If you’re struggling with student loans or other types of debt, ask lenders if they can modify your monthly payments or apply for a grace period.
Open New Accounts Gradually
Adding different types of credit to your credit report broadens your credit mix and increases your total available credit. However, you don’t want to apply for several different credit cards or loans all at once, which could signal to potential lenders that you’re financially struggling.
What you can do: If you want to open a new credit card, look for one from your local bank or credit union, places that will typically offer lower interest rates. If you decide to apply for a personal loan instead, try to keep the loan amount as small as possible to keep your monthly payment amount within your budget.
A Helping Hand
You’ve faced more than your fair share of hurdles to a better credit life. It’s time to take charge and pave the way to your own fresh start. Reach out for a free consultation with Ovation Credit.