Millennial Credit Scores Skyrocket. Here’s Why You Should be Worried!

Updated: Feb 12, 2023

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Various statistics show that the millennial generation is constantly improving their credit scores. Since 2018, their credit scores have constantly been improving, and most millennials have “good credit scores” that are 700 or higher. However, despite all of this, millennials have a lot to worry about financially.

Having a Good Credit Score Doesn’t Mean Having Financial Power

Having a good credit score is generally a good thing. It opens up many new opportunities and makes lenders give you better credit conditions. However, the fact that the millennial generation has a really high credit score on average doesn’t mean that they have more financial power. This shows that the millennial generations have been more responsible financially and have made their payments on time. Still, even with on-time payments, their debt balances have dropped down. In fact, on average, debt balances have increased.

The average balance has risen for the majority of loans out there. Simply put, consumers have learned to avoid credit score red flags. There have been more credits opened at the same time, which reflects positively on their credit scores. However, this doesn’t mean that they are actually better off. With multiple accounts, consumers have only increased the amount of debt they have, even though their credit scores are favorable.

Your main goal should be your financial independence. You want to be able to afford everything you need. If your main goal is to boost your score only, then you should do this for a limited time. Once you’ve improved your credit score, you should focus on cutting down on the number of credit accounts you have.

What is a Credit Score?

This term represents an important statistical number that concerns your finances. Your credit score determines how reliable you are as a customer and how creditworthy you are. The value of a credit score can go down to a minimum of 300 and up to a maximum of 850. Your credit history determines this number. This number is known as the FICO score, and most financial institutions use it to determine someone’s score.

Credit History

Credit history is basically a listing of your crucial credit-related actions. This includes credit repayment information, current and previous debts, and information about your accounts. Every credit report has a credit history as well. The information found on someone’s history includes:

  • Records about credit inquiries
  • How responsible they are with paying their bills
  • How much credit a person has available and the amount they are currently using
  • The amount that they owe
  • How long the consumer’s accounts are open
  • All of their accounts and their types
  • Information about collections, judgments, or bankruptcies

How Your Credit Score Works

Based on credit score information, lenders can evaluate how reliable a potential customer is and whether he or she will repay the loan. It plays a major role in your ability to get mortgages, open up new accounts, car lease, and so on. People who have a credit score under 640 are seen as subprime borrowers. This means that they aren’t seen as ideal customers by financial institutions. On the other hand, people who have a credit score of 700 or more are in the “good credit score” area.

When someone has an 800 score, they are seen as excellent borrowers. When you have a good score, you will get better conditions for financial services or payments. In the last ten years, the millennial generations in the US have increased their average credit score (703 in 2020).

Avoid applying for credits or contracts that require a hard credit inquiry. These inquiries ding your credit score and leave a stain on your credit report. At the same time, it is best to apply for a single account at a time and put more time in between different applications.

The Great Misconception About Credit Score

Everyone is looking to improve credit scores today. People have learned that lenders take a look at their reports whenever they are considering them for credit. However, this vital piece of information isn’t designed for consumers, but lenders. This information is there to show a lender whether or not someone is credit-worthy. They can see how much of a liability a person is and how high their interests and fees should be. Most people know how important it is to represent themselves in the right way to get better deals.

However, people also misunderstand what credit scores are about. Your credit score doesn’t mean that you are stable financially. It simply means that you are a suitable customer for banks and other financial institutions. Additionally, a lot of behaviors that reward you with better scores are often against your financial interest. This is what a lot of millennials fail to realize and why so many carry lots of debt. A good credit score doesn’t necessarily mean that you are in a good financial situation.

Cardholders need to take into account their financial situation when considering their credit scores. Their cash flow, debts, personal loan offers, and current score are all related. This financial ecosystem needs to have a positive outcome that doesn’t mean an increased credit score only.

Record High Fico Scores

In 2019, the credit monitoring bureau Experian reported an average FICO score of 703. This is 14 points higher than in 2010. At the same time, around 60% of Americans have a score that is at least 700. This shows that the whole decade was successful in terms of improving the credit score. During that time, the millennial generation became mature adults that are responsible for their financial actions. Apart from that, lenders have become more cautious about giving loans, and their underwriting standards have become a lot tighter.

This also ensures that they get more reliable consumers that pay up on time. Since millennials have outnumbered baby boomers with the number of loans they have, the primary focus is on this group of people. They are the primary workforce at the moment and have the most impact on the economy and financial state.

Credit Card Debt is on All-Time High

In the last quarter of 2019, the total credit card debt in the US reached $930 billion. The numbers came out directly from the source, the Federal Reserve Bank. This is $57 billion more than in 2018. This shows just how big the credit card debt issue is. Even though the millennials have good credit scores, their debts are skyrocketing.

Delinquency Rate & Credit Card Debt Numbers

  • Credit card debt record $930 billion
  • The current debt is $60 billion higher than its previous all-time high during the financial crisis in 2008
  • The current delinquency rates are at 5.32% which is a 0.16% increase
  • Around 30% of people with student loans default or are in delinquency
  • Millennials have the highest delinquency rate, and it’s 76% higher than any other demographic
  • American citizens over 50 years old have delinquency rates lower than 5%
  • Millennials have 9.36% delinquency rates on average

At the same time, trends show that there are more and more borrowers going into delinquency every year for the past five years. Here is a table of credit card delinquency rates in the US based on age:

118 – 299.36
230 – 396.05
340 – 495.64
450 – 594.79
560 – 694.34

Student Debt is Growing Each Year

A significant portion of students in the US that graduate from college carries student debts. The amount of total active student debt keeps growing each year. At the same time, the time people need to pay it off is also getting longer. The total student debt has reached the number 2 spot of all loans. It has surpassed car loans and credit cards, with only mortgages being higher. During the 90s, the average student loan balance was $10k, and today it’s over $30k. All of the loans have climbed, and the bills related to them.

Around 50% of students that graduate start repaying their debts after 5 years. This shows how difficult it is for new generations to repay their student debts. Several factors contribute to this, including jobs, the economy, and lack of practical work. This shows how your credit score can be misleading. A lot of people do all the things they can to maintain their credit score but are unable to pay off one of the most important debts. Millennials are struggling with huge student debts, and more and more people graduate with a balance.

Many students start repaying their debts while still in college. They create budgets and learn what financial discipline means early on.

How Millennials Can Improve Their Finances With Good Credit Scores

Even though a good credit score on its own doesn’t put people in a good financial state, it can be used to your advantage. If you have a good score, it means that you are in no hurry to improve it even further. Of course, you should always look to get your credit score up, but in this case, there is no need to sacrifice your other financial abilities. Here are some of the ways a good credit score can help you improve your finances:

  • Lower interest. The better your score is, the lower your interest will be. Simply put, you shouldn’t put yourself in a situation to pay more for interest. A study by Lendingtree has shown that people who have a very good score can save around $40k throughout their lives just with the mortgage loan interest. You can also save on student loan interest, auto loans, personal loans, credit card interest, and even business loans.
  • Cheaper Car Insurance. Car insurance companies also rely on credit scores for their evaluations. All of their rates and premiums depend on it. Having a good credit score can drastically reduce costs for your car insurance. Given the fact that everyone has one today, it can save you a lot of money over your life. Furthermore, you might be able to get better coverage that could, in turn, save you lots of money in case of accidents, repair costs, or medical bill costs.
  • No Security Deposit for Smartphone. A lot of companies selling phones won’t give you long-term contracts if you have bad credit. In most cases, they offer people with bad credit pay-as-you-go offers that are much more expensive. Some companies might get you a better contract after a while; others won’t. On the other hand, with good credit, you will get a contract more easily. Additionally, you won’t have to pay a security deposit at the start. You will also get a better deal and have more room to negotiate.
  • Better Credit Card Deals. Credit cards are very useful. They allow you to pay for something quickly while on the go, even if you don’t have the money at the moment. At the same time, a lot of them save you money with various discounts, cash rewards, special offers, and so on. The better your score is, the better the credit cards you can get. At the same time, they can be used for boosting your credit score. If you have a good credit score, you can use a credit card to get into the “excellent credit” range and save even more money.
  • Get a Better Job. Some vital job positions are very competitive, and candidates applying for them go through rigid checks. One of those is a credit check as well. Yes, some companies go through all that trouble to make sure that their key roles are occupied by people who truly deserve them. These organizations won’t give these positions to people who can’t handle their finances and have a low credit score. Getting a better job means higher pay, which means more money in general.

Bottom Line

Millennials don’t have it easy. In fact, a lot of numbers show that they are far worse when it comes to capital than boomer generations. Still, millennials are one of the most financially responsible generations. Their credit scores prove that they are used to making payments on time. However, they need more initiative to improve their finances and get out of debt. They are used to using credit for everything. Even though credit can be a good idea, it’s also essential to save up and have your personal capital.


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