What does age have to do with credit scores? Plenty

Like a good wine, credit scores tend to improve with age. This is mainly why members of the larger silent generation have average credit scores 100 points higher than those of novice millennials.

The typical millennial has a “fair” credit score of just 634, according to a LendingTree study, which examined an anonymous sample of its 9 million users. From there, credit scores gradually increase. GenX ranks better than millennials, with an average score of 653, which is still “fair”. Baby boomers do better than GenX, with an “good” average score of 696. Finally, the silent generation, those born between 1925 and 1945, outperforms with an average score of 734 “very good,” according to research by LendingTree.

Credit scores tend to increase with age for good reasons, experts point out. Some key scoring metrics give points for the amount of time you have had credit and for the depth of your credit experience. After all, credit scores are a way to hurt a person’s propensity to repay a loan in full and on time. The more times you have done this in the past, the more chances you have of doing it again.

But that doesn’t mean millennials have to sit back and wait for their scores to mature steadily like a freshly picked avocado. You can increase your score if you know some tricks.

The first step is to understand which factors play the most important role in your score. The great father of credit scoring, Fair Isaac, who produces the FICO score, publishes the basics of his scoring model, including the weight that each factor has on the end result.

The short version: 15 percent of your score is based on the length of your credit history; 35 percent is based on your payment history: the longer and cleaner your payment history is, the higher that part of your score. Another 35 percent is governed by how much ten versus how much credit you have available; 10 percent is determined by the number of different types of loans you have had (i.e., student loans, credit cards, mortgages, etc.).

The final 10 percent look at how much your credit is new. This works mainly against you when you are setting up credit for the first time. The metric sees it as if you have suddenly called all your friends to get a loan, which makes you feel needy and fiscally irresponsible.

Millennials have what’s called a “thin file,” simply as a result of their age and not being able to sign a legal contract (like a loan) until after age 18. If you’re a millennial, that means both the length of your credit history and your experience with credit is likely to be modest. If you have any credit, it’s likely to be relatively new. And you probably don’t have many different types of loans.

It is likely that your “use” of credit will also work against you. This usage figure, which accounts for about one-third of your score, compares the amount of credit you have available to the outstanding amount. The lower the usage percentage, the better. If you had a $ 100 balance on a credit card with a $ 1,000 limit, for example, your usage would be 10 percent, which is great. But if you still owe $ 9,000 of your original student loans worth $ 10,000, your usage is 90 percent, and that’s considered bad.

On the other hand, every month you pay against this student debt works in your favor, reducing your balance, reducing the “use” of your credit, and accumulating more months of credit history.

The other side: the negative impact of even a late payment is amplified by your lack of credit history. A late payment in a three-month history indicates that one-third of your credit history is incomplete. On the other hand, if you have a 30-year credit history with a late payment, this is an insignificant part of your total record and has almost no impact on your score.

How do you increase your score? Make all payments on loans, rent, and services on time and get a credit card to add to your history and reduce your usage. This, however, leads many to a Catch-22. Millennials need more credit to generate credit. But without credit, they can’t get credit. You have three ways to address this dilemma:

• Go to the bank where you have a checking account and ask to add a credit card. If you do not have a credit nick in your file, it is likely that your bank will do so as hosting. They will generally keep your credit limit low (maybe between $ 300 and $ 500) until you have more experience paying off debts. However, if you use the card and pay on time, your credit score will gradually improve and your bank will usually increase your limit by one year.
• If you have credit marks against you, you may need to request a call secured credit card However. These credit cards require you to deposit an amount equal to your credit limit to secure your refund. They are often the only viable option for people who are rejected by their own bank. Fortunately, both Capital One and Discover have low-cost secure cards, according to NerdWallet’s credit card search engine.
• But the quickest and most effective option, if you can change it, is to take someone else’s good credit by becoming an “authorized user” in one or more of their accounts. This helps your credit on several fronts at once.

To illustrate the third point, let’s assume your parents have great credit and know you’re responsible, so they don’t mind adding you as an authorized user to one of their long-standing credit card accounts. If you are added as a user to an account with a $ 10,000 limit, this “available credit” jumps to your credit file, reducing your credit “usage” percentage and increasing your credit score. Better yet, every month your parents pay their balance on time they also give you credit for more one-time payments. You do not need to charge anything on this card to get credit for your good payment history.

And it can’t hurt to have a long vision: even though time is working against you, it will eventually become your friend and help increase your score as you age.

In:
• millennials
• Baby boomers