In a recent article by LendingTree, the researchers compared generations and their credit scores finding that Millennials have the lower credit score of all the previous generations. While this may sound like Millennials are accumulated more debt, superficial, or just don’t know how to build strong credit, there is something else at play here.
In fact, Millennials should have a lower credit score than older generations. Generation Z, the younger generation than Millennials should even have a lower credit score than the older generation. This continues otherward.
Why you may ask? Simple:
1. Length of Credit History
When someone opens up their first account, they begin the process of their credit history. The earlier that they do this, the better off they will be in the future. When taking into account the impact of length of credit history history accounts, FICO reports that it influences 15% of your credit score.
Considering its a 850 system, that means credit history can fluctuate up to 127.5 points just from length of credit history!!!!
Comparing the different generations below, you can see that the average score improves 40 points per generation. A small enough amount to consider credit history as a weighing factor.
Pro Tip: Avoid canceling any old credit cards as they will shorten your credit history!
2. Lifestyle Changes
Why do you need a good credit score?
As a 20 year old maybe it is to rent that apartment that is on the corner of 4th and 2nd street.
For a 30 year old, it could be qualifying for their first mortgage to move in your newly married spouse.
Lastly, for a 40 year old, it could be qualifying for a amortization loan to purchase your upgraded family house.
As people age, the importance of having a good credit score becomes exponentially more important. Bigger life decisions come into play which consequently require more money. Unfortunately, when people are not confronted with these decisions earlier on, they place less focus on their important. Hence, people who are younger have less incentive to have a good credit score than if they were about to purchase their dream house.
3. Iterative Improvement
Have you ever forget to pay the rent because it slipped your mind or maybe you send the payment to the wrong address?
Whatever it may be, we all have made careless mistakes with our credit scores. You know what happens when we make these mistakes? A ding. A nice beautiful red mark that will stay on our credit score unless we hire some sketchy credit improvement company to fix up these issues.
People tend to make these ‘credit mistakes’ earlier in their career. At first, they are neglected. ‘Oh that won’t hurt, I should be fine.’ To later find that your credit score checked and having to dig through the report wondering why it dropped 50 points. These scary moments are remembered and people start to learn from their mistakes. Hence, you should expect the improvement to happen over time.
If you ever get worried that your credit score, just know it will get better overtime. Sometimes being old is an advantage, and for credit scores this is their game.
Jeff Butler Internationally respected speaker and consultant, Jeff Butler helps bridge generational gaps between Millennials and companies looking for their talent and patronage. Butler has quickly built his reputation as a memorable presenter with tangible solutions for attracting, retaining, and engaging Millennials as employees and customers. Within just the past three years, he has spoken at two TEDx events and multiple Fortune 500 companies such as Google, Amazon, and LinkedIn.