How's your credit rating? If you're a Millennial American, juggling student loan debt, a couple of low-paying gigs and maybe even a bit of consumer debt, the answer is probably not great. In fact, as many as 90% of Americans are losing sleep over money, so you're not alone. The good news is that as you get older, your credit score is likely to increase. That's not just good for bragging at the bar. It's also good, because it means less stress from all the money issues associated with a poor credit score.
The Facts About Credit Scores and Age
On average, your credit score will increase as you get older. The average credit score for Americans between the ages of 19 and 34 is 625 out of 850, while the average credit score for Americans between 35 and 49 is 650. That's not much of a bump, but once Americans hit 50, the average credit score jumps to a 709. That's over 30 points higher than the average credit score for all Americans, according to Experian.
So what's behind the increase in credit scores? It's not money, because your income has nothing to do with your credit score. What's more, there's not even casual relationship, as Gen X-ers tend to make more money than their Boomer parents. And it's not, strictly speaking, average debt, because Generation X has more non-mortgage debt than Millennials.
What's Behind Generational Disparities in Credit Scores
Gerri Detweiler, head of market education with Nav, points out that part of what's in play is the age of your credit history. "Your age and your mix of credit add up," she says. "You get credit, so to speak, for having experience for credit." That's not the biggest factor when it comes to your credit score. All told, the length of your credit history and the mix of credit you use combine to about a quarter of your overall score. But they do make a difference, especially over time.
It's not just about the length of your credit history, however. It's also what you've done with that credit history. John Heath, a directing Attorney with LexingtonLaw, notes that the most dramatic increases in credit scores come between the ages of 45 and 60. "From what I've seen, it comes down to life experience," he says. "After a certain age, people know how to budget. They know how to use credit appropriately to maximize their credit scores." One issue that younger people have with credit, Heath notes, is that there's no education about it in schools, so most people learn it by trial and error.
Another reason for the generational disparity, according to Detweiler goes back again to the issue of length of credit history. It's not that younger people are misusing credit as such. It's that they just don't have enough of a record for credit reporting bureaus to make an informed determination of what their score ought to be. Given that credit reporting bureaus tend to be conservative institutions, they often err on the side of caution. "You don't know much about a high school baseball player," says Detweiler. "But once they have a couple years in the minor leagues, you know a bit more about how they're going to perform." Likewise, credit reporting bureaus need to see your performance with credit before thy can score you accurately.
Heath concurs. "When you start out, you don't have much of a credit rating," he says. The problem is that a lot of young people's early experiences with credit tend to be mistakes or setbacks.
"The experience factor is the big one," Heath says. "That's why you see a jump around 45." He notes that around that age, consumers might even see a score jump between 50 and 100 points. "That's indicative of people learning how to manage their scores through trial and error," he says.
The bottom line? If you want a better credit score at any age, keep your credit utilization ratio (the amount of credit you're actively using) low and pay your bills on time. If you do that, you'll always have a rock solid credit score, whether you've just graduated from college or you're looking to send your kids there.