COSTA MESA, Calif.—A new study indicates that Millennials have the lowest credit scores of all generations, even as they make some major purchases earlier in life than previous generations.
The report from Experian also indicates that Millennials use credit less than previous generations but have potential to be better credit customers in the future.
According to the study, the average credit score of Millennials is 625, Generation X 650 and Baby Boomers 709. The overall national consumer average is 667.
“As Millennials have now passed Baby Boomers as the largest segment of the U.S. population, this digitally independent generation is still much less savvy than older generations when it comes to their finances and credit management,” said Experian.
The analysis highlights the credit characteristics of an average Millennial and looks at how other generations are faring.
“Given the significance Millennials play in financial services and the credit marketplace, it is crucial to understand this influential consumer segment and how they use credit as a tool,” said Michele Raneri, vice president of analytics and business development. “While this generation may not look like they are on the right track financially, it’s important to keep in mind that credit scores are built on credit experiences, and while this generation has been slower to use credit, they have plenty of opportunities to build a positive credit history. The best way to do that is to understand credit before using it.”
Even with Millennials taking a little longer to establish some forms of credit compared with previous generations, their sheer numbers make them an important and growing market segment, noted Experian.
When comparing credit usage of a more youthful Generation X population, there appear to be some interesting trends in origination patterns, said Experian. Auto loans make up 14% of all recently opened accounts for Millennials, compared to 1% for their Generation X counterparts at the same age in 1998. Similarly, student loans make up 24% of all new accounts for Millennials, compared to 20% for their Generation X counterparts at a comparable age. The study also shows that fewer Millennials are using bankcards, with only 27% of their recently opened accounts being bankcards, compared to 46% for their Generation X counterparts at the same age.
“We’re seeing that Millennials are purchasing cars at a much earlier point in life, which is giving them the opportunity to build credit a little differently than previous generations,” said Rod Griffin, Experian’s director of public education. “This is a critical time for members of this generation as they are learning to use credit as a tool. With so many financial education resources available to help them, we believe that members of this generation are more empowered and informed than members of other generations and are starting their adult lives off by building strong credit as they set out on their own.”