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 The average millennial credit score is 625, and 28 percent of them
are ranked below 579, says NerdWallet, a personal finance website.
In the world of credit scores, anything above 660 (out of 850) is
considered good.
Based on millennial credit habits, those scores may not improve.
Among the key issues: Some millennials (18-34-year olds) are
shunning credit cards completely after hearing so many debt-related
horror stories from the financial crisis. Others are applying for
the wrong cards and getting rejected.
"Millennials are misunderstanding, or are simply unaware of, the
benefits of credit cards," says Sean McQuay, NerdWallet's resident
credit card expert.
A recent study by Experian found that millennials are making student
loan debt more of a priority. That's in contrast to the previous
generation, Gen X, which prioritized getting credit cards.
About a third of millennials have never even applied for a credit
card, NerdWallet says. That means they are not building credit and
will have a hard time when they need a credit history.
Millennials' avoidance of getting into the credit card game will
cost them in the long run. For example, you need a solid credit
score to rent an apartment, get the best insurance rates or just get
a loan.
Credit scores are even sometimes used to vet job candidates these
days. Credit history is key for making grownup purchases - and the
length of that history is a big part of your credit score.
The good news is that the majority of millennials have applied for a
credit card. But when they do apply for credit, about half (48
percent) are motivated by an advertisement or promotion, according
to NerdWallet's research. That can lead to a bad fit.
For example, a millennial who doesn't drive should not apply for a
gas card. Credit cards are not one size fits all.
Ironically, NerdWallet's study found that millennials with the lower
FICO scores — between 300 and 579 — are applying for credit the
most. Not surprisingly, they also get approved less frequently.
CREDIT STRATEGIES
Getting credit for the first time needs to be done strategically.
Here's why: when a consumer applies for a new credit card, his
credit score gets what is called a "hard" credit inquiry. The more
inquiries a consumer has, the riskier he or she appears to be to
lenders, and that in turn lowers his or her credit score. If you are
starting out cold with no score, that gets amplified.
"A good rule of thumb is to wait six months to a year between card
applications," says McQuay.
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NerdWallet recommends Millennials take advantage of the free FICO
scores now offered by many credit card issuers. A full list can be
found here (http://www.nerdwallet.com/blog/credit-cards/credit-score/credit-cards-give-free-fico-scores/).
Other potential sources for this information for some student
borrowers include Sallie Mae, along with credit counselors.
A common pitfall to avoid: store credit cards, which often come with
an initial discount off items purchased. "They say 'Do you want to
save 10 percent?' and my answer is always only if you don't run my
credit and that ends the conversation," says Cary Carbonaro, author
of "The Money Queen's Guide."
Your credit score goes down the more you shop for credit and keep
adding outstanding credit lines, Carbonaro notes.
Carbonaro's advice is to apply for low-limit cards and charge small
amounts on a regular basis. Pay off your bills every month and
slowly build a credit score.
Be careful of rewards cards, too. Or at least do the math before you
sign up. The average annual fee on a reward card is $58. The average
reward rate is 1.14 cents per point. You have to spend $5,088, just
to earn back your annual fee. If that's not likely to happen, it is
better to go for the no-fee card, especially since almost one in
five people did not redeem any of their rewards last year.
Paying cash for everything may sound great. But, like it or not, you
need credit to establish yourself in the financial world. It's
better to reward yourself with a strong credit history.
(Editing by Lauren Young and Dan Grebler)
[© 2015 Thomson Reuters. All rights
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