Millennials, who are individuals that were born between the early 1980s and the early 2000s, have the lowest credit scores and use credit less than previous generations, according to a July 2015 Experian report. Overall, millennials are less savvy with their finances and struggle with low wages while burdened with similar amounts of non-mortgage debt as baby boomers and Generation X, which includes individuals born between 1965 and 1982.
The average credit score among millennials is 625, 25 points lower than Generation X and over 60 points lower than baby boomers. Whether money is tight or you’re just now coming into financial stability, you can boost your credit score steadily over time. Here are 20 tips to strengthening your score.
Related: 7 Money Myths About Millennials
20 Ways Millennials Can Improve Their Credit Scores
1. Pay Your Bills on Time
A simple but easy way to boost your credit score is to make on-time payments. But if you’re saddled with numerous student loans and other bills, it could be difficult keeping tabs on all of your payments every month.
Robert Farrington, founder of The College Investor, said the key to making payments on time is being financial organized. “Use a free tool like Mint to track all your accounts and due dates in one place. Keep a file for all your statements. And setup online bill pay or automatic payments.”
2. Don’t Ditch Your Cell Phone Plan or Utility Bill
While cell phone plans and utility accounts do not routinely report your on-time payments to credit bureaus, they can report a default. That default can stay on your credit report for up to seven years. If your parents recently dumped your cell phone bill on you, look to other, more affordable providers.
3. Check Your Credit Report Annually
If you’ve never checked your credit report, now is a good time. Reviewing your credit report can alert you if you’ve been the victim of fraud or if a debt or payment was mishandled. Reporting errors on your report can have bad marks removed as well as provide you insight into how you can improve as a borrower.
4. Improve Your Credit Utilization Ratio
Robert Palmer, president of RP Funding and host of “Saving Thousands,” recommended you “Focus on reducing your utilization percentage. Your utilization — your credit card balances compared to your credit card limits — is a major indicator on whether you are a risk for lenders. It is also a significant factor in determining your credit score.”
To improve your credit utilization ratio, increase your available credit either by paying down debt, getting another credit card or having your credit card limit raised. This can improve the ratio between how much credit is available to you compared to how much credit you’re using.
5. Use Your Student Loans to Build Credit History
Having student loans in deferment or forbearance won’t hard your credit score, but “once you’re obligated to begin making payments, late payments can get reported to credit bureaus and dent your score,” said Priyanka Prakash, a lending specialist at FitBizLoans.com, a loan search platform for small businesses.
She recommended you “Set aside a chunk of your income every month for student loan payments in order to maintain your credit score.” If you’re having trouble affording monthly payments, call your lender to see if you qualify for an income-driven repayment plan.
6. Get a Secured Card
Millennials have the lowest average number of bankcards, according to Experian, meaning their credit histories could be looking too thin for lenders. If you are just starting to manage your own finances, you might have difficulty qualifying for lines of credit. If so, a secured card can be your first step to building credit history.
On this, Jeanne Kelly, CEO of The Kelly Group Coaching, said, “If you know each month you pay an utility bill, use your secured card to pay the account.” Doing so, she added, is an “easy way to show history on an account.” An alternative to a secured card is becoming an authorized user on a parent’s credit card account.
7. Consider a Balance Transfer
A balance transfer allows you to potentially move your balance from a high-rate account to a lower-rate account, helping you save money on interest over time. “A balance transfer at a low rate makes it easier to pay down your balance, improving your debt-to-credit ratio as your balance decreases,” said Randy Hopper, vice president of credit cards at Navy Federal Credit Union. “Keep an eye out for balance transfers with no fees, zero percent interest during the introductory period and a low rate after the intro period expires.”
8. Reconsider Your Car Purchase
“Millennials are purchasing cars at a much earlier point in life than their parents or grandparents,” said Ken Chaplin, SVP at TransUnion. If you live outside the city and can’t commute by public transportation or bike, look to purchase a car you can afford to pay off quickly. “Be frugal with your purchase and save the luxury, fully-loaded car for when you are more financially stable,” Chaplin added.
9. Build an Emergency Fund
An emergency fund, which can simply be a savings account, can help you stop relying on credit cards for unexpected expenses. This way, cash will be available for life’s little emergencies such as a car break down or unforeseen bill.
10. Don’t Open a Credit Card for a Small Gift
“Don’t sign up for credit cards in exchange for trinkets like a free t-shirt,” advised Chaplin. “Those cards often have low credit limits and relatively higher interest rates.” While a sign-up incentive is a great perk for customers who are already resigned to opening new lines of credit, getting corralled into a new credit card you didn’t plan on can be a recipe for disaster, especially if you sign up on a whim without reviewing fees.
11. Live Within Your Means and Shop Smarter
After-work drinks, weekends at the bar and clubs, and the occasional bender in Las Vegas or Burning Man will wring your savings dry. Even your daily Starbucks is making it harder for you to manage debt.
“Ultimately, it’s time to stop spending,” said Andrea Woroch, a nationally-recognized consumer-savings expert. “Your objective should be to pay down all debts faster so you can begin saving and setting up your life.
“However, there are purchases you have to make, so learn how to shop smart. For instance, shop secondhand stores for work clothing, pick up last year’s models on electronics and use a coupon app like CouponSherpa.com to save on everything from restaurant meals to groceries to cleaning supplies at department stores.”
12. Calculate Your Debt Load and Keep It Below 36 Percent
Lenders look for a debt-to-income ratio that is below 36 percent. To find this ratio, add up all of your monthly debt payments, divide your monthly payments by your monthly gross income and move the decimal point two digits to the right.
13. Don’t Close Old Credit Accounts
Even if you pay off and no longer use your credit card, you’ll want to keep the account open if it doesn’t have an annual fee. Your unused credit line will help you lower your credit utilization ratio and lengthen your credit history. Remember: “The length of your credit history matters, too,” said James Pollard of PersonalFinanceGenius.com.
Even maintaining a small amount of activity on your account can strengthen your credit history. Just remember to keep a positive payment history on your account. “Payment history is 35 percent of your credit score and thus has the most impact,” he added.
14. Consider Moving in With Roommates
More than any other generation, millennials are saddled with high amounts of student loan debt. Rather than allow your debts and monthly bills to squeeze every penny out of you every paycheck, look to move back in with your parents or roommates.
Sharing the cost of living allows you to allocate more money to your debts, helping you pay them off faster. Even moving back in with your parents for a few months offers you the chance to build an emergency fund.
15. Never Carry a Balance on a Credit Card
Carrying a balance on a credit card will strain your budget. To build your credit history, make small purchases on your credit card and then pay off the balance in full before your due date. This will help you avoid interest charges while showing creditors you’re a reliable borrower. If you already have a balance on your credit card, aim to pay more than the minimum each billing cycle to bring your balance to zero as soon as possible.
16. Don’t Apply for Multiple Loans or Credit Cards at One Time
Every time you apply for a loan or credit card, it results in a hard inquiry — a ding on your credit report. Too many hard inquiries can negatively affect your credit. If you need to open a new line of credit, find out the requirements for the account so you can apply only when you’re sure you have a high chance of being approved.
17. Make a Habit of Checking Your Bank Account
Many banks and credit unions offer mobile banking, which allows you to stay on top of account activity. Make a habit of checking in on your account every day to track your spending and ensure bills are being processed. Many young consumers avoid checking their bank accounts, but making it a habit will make you more comfortable with your finances, ensuring you’re keeping on top of spending.
18. Set Up Automatic Bill Pay
Sign up for paycheck direct deposit instead of re-loadable debit cards. Set up an automatic transfer to an emergency savings account and 401k, and take advantage of automatic online bill pay for recurring bills so you never miss a due date.
19. Put Windfall Toward Retirement Savings
For millennials with student loans, if you come upon windfall, it can be tempting to throw all your money at your loans. But continuing regular payments rather than paying off your debt all at once gives you the opportunity to develop a long, positive credit history. Many student loans also have low interest rates, meaning you have more to gain by building retirement savings rather than eliminating debt.
20. Be Patient
Last but not least, be patient and consistent as you actively work toward boosting your credit. “Acquiring healthy credit doesn’t happen overnight,” said Chaplin. “There are no shortcuts to establishing good credit, but your long-term investment in your credit health will pay off down the road.” So, find out which strategies work best for your personal finances and stick to them for the long haul.