According to a new study done by Experian it is clear that Millennials have very different credit than other generations.  On average, Millennials have credit scores that are about 25 points lower than that of Generation X’s. In fact, the average credit score for a Generation X is 650 compared to 625 for a millennial. Additionally, the average credit score for baby boomers is about 709. So, why do so many in the millennial generation have lower average credit scores than their elders?

Today, millennials are using their credit much differently than the older generations are. For example, they generally use 43% of their available credit card limits, compared to 34% nationally. Moreover, the average debt for a millennial is approximately 77% of their income, while the national average is 49%.

When compared to a Generation X at the same age, ML’s are:

• Not as likely as Generation X’s to apply for credit cards. Credit cards account for approximately 27% of new accounts for millennials while it accounted for 46% of Generation X’s.
• Slightly more likely to have student loans and those loans account for about 24% of millennials new opened accounts compared to 20% of Generation X’s.
• A lot more likely to take out a loan for automobile insurance than Generation X was. Car insurance makes up about 14% of newly opened accounts for millennials, while it only made up about 1% of these accounts for Generation X’s.

There are many different FICO credit scores but mortgage lenders typically use the FICO 4 version, which ranges from 300 to 850. It is often hard to say what a ‘good’ credit score is since it is all relative to what you are applying for, however, scores that are in the low 600’s are generally viewed as average or poor. Additionally, scores that are above 700 are typically viewed as good scores. Anything above a 740 is considered excellent.  Low scores make it increasingly difficult for people to receive loans with favorable lending terms, especially on home mortgages. Due to their average credit score, this could be a determining factor for why home ownership rates are so low for millennials. In addition, another explanation for the low home ownership rates for millennials is that they are facing larger student loan burdens than their older counterparts did.

Millennials have shorter credit histories and thus, thinner credit files than older generation’s, missing payments and/or higher debt will impact their ‘young’ credit profile more; since they have limited credit, their scores will start off lower and thus, when a delinquency occurs, their scores will only drop more from there.  If a consumer had a 780 credit score prior to a delinquency they would wind up much higher than an individual that started at a 620.  The same would occur for high balances on revolving credit; because of this Generation X’s are seen as more reliable than millennials.