Credit scores are surging, especially among younger Americans

Laveta Brigham

Credit scores are surging, especially among younger Americans Though 2020 has been rough on personal finances and the U.S. economy, Americans’ credit scores are soaring. And that’s particularly true among millennials and the younger adults who are members of Generation Z. “Against the backdrop of the pandemic, we are seeing […]

Credit scores are surging, especially among younger Americans
Credit scores are surging, especially among younger Americans

Though 2020 has been rough on personal finances and the U.S. economy, Americans’ credit scores are soaring.

And that’s particularly true among millennials and the younger adults who are members of Generation Z.

“Against the backdrop of the pandemic, we are seeing promising signs of responsible credit management, including lower credit card balances, decreased utilization rates and fewer missed payments — especially among younger consumers,” says the credit bureau Experian in a new report.

Average credit scores are rising to some of the highest levels on record. But if your score isn’t keeping up, don’t worry — because raising it isn’t that difficult if you know what to do.

Young adults lead a jump in credit scores

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The company behind the commonly-used FICO rating says the average U.S. score stands at an all-time-high 711 out of a possible 850, up five points from a year ago.

While early returns show consumers have been more credit-responsible during a chaotic 2020, FICO warns that it often takes time for major economic events to be reflected in credit scores. It might be a few more months before the financial strain shows up in consumers’ credit reports.

Meanwhile, the average VantageScore, the newer of the credit scoring systems, also has shot up this year. According to Experian’s annual consumer credit review, released on Tuesday, the average score has jumped to 688, a six-point increase from last year.

Experian’s data shows members of Generation Z, the youngest adults, saw the greatest gains as their scores jumped an average 13 points in the past year. Millennials improved their scores by 11 points, on average.

How are young Americans doing it? By practicing responsible credit management, Experian says.

Good credit habits mean good credit scores

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Credit utilization — the amount of your available credit that you’re using — is a major factor in determining your credit score. Utilization rates dropped for every generation, but the biggest declines have been among Gen Z borrowers (an average 6% dip) followed by millennials (5%).

Both generations also reduced their average credit card balances and missed fewer payments on their debt.

Plus, people in their 20s and 30s are reaching personal and professional milestones, such as getting their first credit cards, advancing in their careers or buying homes and taking out mortgages at this year’s super-low rates — all events that can greatly impact credit ratings.

But it’s not just younger generations practicing responsible borrowing. Americans in nearly every age group have raised their average VantageScore this year.

Here’s the breakdown of average credit scores by generation, in 2019 and 2020:

  • Generation Z (ages 18 to 23). 2019 average, 641; 2020 average, 654.

  • Millennials (ages 24 to 39). 2019 average, 647; 202 average, 658.

  • Generation X (ages 40 to 55). 2019 average, 666l 2020 average, 676.

  • Baby boomers (ages 56 to 74). 2019 average, 710; 2020 average, 716.

  • Silent generation (ages 75 to 92). 2019 average, 731; 2020 average, 729.

5 steps to raise your credit score

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If your credit score isn’t close to the averages, it’s not to late to start building it up in 2020. Here are five ways you bolster your score.

1. Let the experts monitor your score

Sure, it used to cost you to take a peek at your credit score. But these days companies will let you see your score and even help you monitor it — for free.

You’ll also get personalized suggestions on which accounts to pay down first, and will be walked through a checklist of steps you can take to improve your credit score.

Credit monitoring can assist you with keeping track of any mistakes on your credit report that could be affecting your score.

2. Free yourself from debt

If you’re struggling to make even minimum payments on your credit cards, your credit score will eventually take a hit — especially if you begin missing payments.

A debt consolidation loan allows you to take out a new low-interest loan and use it to pay off all your high-interest debt.

With the help of a free online service, you can get the best lending options to consolidate your debt and save your credit score before it tanks.

You can borrow up to $100,000, with no collateral, at interest rates between 3.99% and 35.99% APR, and choose your repayment schedule — typically 24 to 84 months.

Applying for a new loan might cause a short-term dip in your score, but paying off debt and having a variety of different credit accounts will boost it quickly.

3. Write ‘goodwill letters’ when you mess up

Miss a payment? Nobody’s perfect.

If you generally have a solid credit history but somehow fell behind, you can send a goodwill letter to your creditors. Make it short and sweet: Take responsibility for the mistake, explain how long you’ve been a good customer and describe the steps you’re taking to ensure it doesn’t happen again.

The creditors aren’t obligated to clear the stain from your history, but the letter may help you get back in their good graces and improve your score.

4. Find better rates on insurance to help reduce your debt

Paying off debt is one of the most impactful things you can do in your quest to raise your credit score.

Good budgeting can help you shed debt — and so can cutting your routine expenses.

You could be saving $1,000 a year or more on homeowners insurance simply by shopping around for the lowest rate.

And you can save just as much, if not more, by comparing rates from car insurance companies to make sure you get the best deal.

5. Build your score with a secured credit card

Secured credit cards offer a low-pressure way to build credit history — especially for those who can’t get approved for the real thing.

These cards are low-limit and require a deposit to establish your limit. If you deposit $500, that’s your limit.

A secured card could keep you from going overboard on your spending and help you get into the habit of paying off your balance every month.

Compare secured card offers to find one with attractive terms, like no annual fee and a minimum deposit amount that works for you.

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