Millennials (those born between 1981 and 1997) have faced a rough job market and economy as adults, and therefore often have encountered a lot of difficulty building their credit scores. In fact, according to Experian, Millennials have an average credit score of 628, the lowest for any age group and 50 points below the national average.  Unfortunately, many of these older Millennials are coming to the age point where they want to purchase real estate and/or acquire financing, and have difficulty because of their credit.  Below are tips on how Millennials can build their credit scores.

Here are some easy ways for Millennials to build credit:

• Acquire a credit card

Many Millennials are wary of credit cards after seeing others’ debt struggles and unemployment. According to some surveys, over 60% of Millennials don’t have a primary credit card.  Opening a primary credit card can be the easiest and quickest way to build credit, and can benefit a huge portion of Millennials. Although a first credit card may have a very small balance, even small payments can build a credit history. You can tell Millennials to put one low monthly expense on their card.

• Utilize secured credit cards

Even though credit cards are an easy way to build credit, some Millennials won’t be able to get approval to open one. Another great option is a secured card, where a cash collateral deposit becomes a credit line for that card. These deposit amounts could be as small as $250-$300. Secured cards are still a great way to build credit if the payments are made on time.

• Keep balances low

When opening credit, Millennials have to make sure they charge an amount they can afford every month. High balances can cause higher fees and big credit damage if they aren’t paid off in time. On the other hand, balances can also be used to boost credit scores. The utilization ratio (or balance-to-limit ratio) plays a large part in credit scores. Keeping balances under 10% of credit card limits will result in the highest score possible in this category. This percentage should be used a few months prior to applying for new credit cards or loans to ensure scores are at their best when the lender/creditor is viewing credit applications.

• Pay bills on time

Late payments from cards, and also from loans, debt, and other bills Millennials face, can cause large score drops. On the other hand, timely payments can help Millennials build their credit over time.

• Check credit reports regularly

Even if Millennials don’t think they have a credit history, it’s important for them to check their credit reports from the three bureaus regularly. Millennials can find things like a forgotten college medical bill or missed cell phone payment that has dragged down their credit score. Checking your own credit does not hurt credit scores. They can also contact us with any problems they find on their report to get it resolved quickly.

• Avoid signing for joint credit products

Although they can be tempting, things such as a joint account or signing a lease where others have promised verbally to pay but the account/contract is in one’s name only can cause major credit damage.  Helping friends with limited, poor, or no credit by signing for a cell phone, rental lease, or credit card can dramatically impact scores later if payments are made late or a default occurs.  The rule is “If you don’t have control of the payments or are not prepared to pay the whole debt/contract then you should not sign for it”.  It’s important for Millennials to mindful of what they are signing, especially if it requires relying on someone else for payment.

Feel free to reach out to us if you have any credit questions or reports you would like reviewed!