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What Millennials Need to Know About Their Credit Score

What you'll learn: What to know about your credit score as a millennial


Before you make the big decision to buy a house, car, or even apply for a credit card, it may not be entirely clear just why your credit score is so important. Data from Experian and TransUnion has revealed that for millennials, the need to be in the know—is clearly a concern.

According to credit bureau Experian, Millennials have the lowest credit score of any age group, averaging a VantageScore of 625 compared to the national average of 667. According to credit bureau TransUnion, both Millennials and Generation X have subprime credit, the lowest credit tier possible. Ouch.

So what is a credit score and why should you care about it? Let’s take a look at the credit score basics.

A Good Credit Score Can Save You Cash

If you should ever need to apply for a credit card or a loan—from a personal loan to a car loan—you’ll appreciate having a better credit score. That’s because people with the best credit scores get the lowest interest rates. Over the course of a 30-year mortgage, for instance, a lower interest rate can save a homeowner quite a bit of money.

But even if you are not planning on buying a house or a car anytime soon, understanding your credit and credit score is still important.

A bad credit score can keep you from getting an apartment or opening accounts with a company that provides a particular service: such as a service contract for your new smartphone or a service plan with an internet and/or cable provider. To avoid being denied for these types of services, you’ll need a decent credit score.

Your Credit Report Isn’t Your Credit Score

While the terms can be easy to confuse, your credit report and credit score are two completely different things.

Your credit report is essentially a list of all of your credit information that is provided by the creditor/lender that extended you the credit. The creditor/lender sends the information to the three main credit bureaus: Equifax, Experian, and TransUnion. The information includes accounts you have opened, your repayment history, credit limit, and current account balances. These reports are maintained by three main credit bureaus mentioned above.

Your credit score, however, is a number, typically between 300 and 850, that’s calculated based on the information contained in your credit report. Here’s how your score is evaluated:

  • Payment history. This category tracks your repayment history. It reflects whether or not you are paying your bills by the due date. A payment that is 30 days or more past due will negatively impact your credit score.
  • Amounts owed. This category considers the total amount of debt you currently have, and also your revolving utilization rate. Revolving debt is defined as an account that has a credit limit that can be continuously used as long as it is repaid in a timely manner and you have not exceeded your credit limit. An example: You have a credit card with a credit limit of $500 and you currently have a $500 balance. That’s viewed as being at 100% utilization. This could indicate possible financial stress and will negatively impact your credit score. The credit reporting agencies recommend that consumers should manage their revolving debt to a utilization rate of 30% or less. The higher the utilization rate, the greater the negative impacts on the credit score.
  • Length of credit history. This one’s simple. This category reflects how long you’ve had credit of any kind. A longer history is better. It’s also an important reason as to why you should start building your credit as soon as possible.
  • New credit. This category considers how many accounts you’ve opened recently. If you open a lot of accounts all at once, it may look like you’re actively acquiring a lot of new debt—which may negatively impact your credit score.
  • Types of credit. Your score looks better if you have a range of different types of credit: from credit cards to car loans.

You Can Review Your Credit Report for Free

The three credit reporting agencies are required by law to provide you with a free copy of your credit report, once a year. You can take a look at your report from one or all three agencies by going to The information from each can vary slightly (they may not all have the exact same information about your finances), but all three should provide you with similar information.

You Can’t Always Get Your Credit Score for Free

While your credit report is free, your credit score is not. However, your financial institution or credit card provider may offer it to you as a courtesy for free—PenFed Credit Union account holders can see their FICO score online.

There Are Different Types of Credit Scoring

Here’s where things get a bit complicated: while the term credit score is bandied about generically, there’s more than one way to calculate a credit score. But don’t panic: while the math involved in coming up with a score may vary somewhat, the fundamentals of what makes up your credit score are the same. As long as you’re maintaining a good financial track record, your credit score should be fine no matter how it’s calculated.

Different institutions may use different scoring systems to determine whether to extend you credit. The most common scoring system is FICO, but there’s also the newer VantageScore system.

There’s Always an Opportunity to Improve Upon Past Financial Missteps

If you’ve missed a bill payment or repeatedly made late payments—it’s not the end of the world. Though you may have regrets about it, you do have the power to right the wrongs of your past financial missteps. If you’re trying to recover from these past payment mishaps, work on paying your bills on time and staying out of debt—your score won’t improve overnight, but it will eventually get there.

How to Build or Improve Your Credit Score

Open new accounts. This can be harder than it sounds, because if you have no credit or poor credit, you may find yourself being denied for new credit, or being approved for credit with a very high interest rate. If so, try a secured credit card (which requires an up-front deposit), a student-specific credit card (if your financial institution offers them), a store credit card (which may have eligibility criteria that are more lenient), or see if a parent would be agreeable to adding you as a co-signer to an account (which can help you begin building upon your credit history).

If you have student loans, a car loan, or a store card, that’s a good thing because all of these types of accounts count toward building your credit. If you want to work on improving your credit score, you’ll need to consistently make your payments on time, all the time, to get that desired credit score boost.

Use those accounts. Once you’ve opened an account, you have to use it. If it’s a credit card—that means charging purchases to it from time to time (they don’t even need to be large purchases, small purchases will do just fine), and then make sure your minimum monthly payment (or full balance) is made by the due date.

Pay your bills on time. We’ve mentioned this several times now, but we cannot stress this point enough—it’s important to diligently make your bill payments on time, all the time. Late payments, or missed payments, both reflect negatively on your credit score.

If you have trouble keeping track of all your bills and the various due dates, consider one of the following: setup payment reminders with your favorite to-do app, arrange automatic payments through your financial institution, write it down on your desk calendar, create a reminder ping on your cell phone, or even better—sign-up for payment text alerts with your financial institution. Whatever it takes to help you remember—just make sure you do!

Build your emergency fund. You may be wondering what savings has to do with your credit score, but trust us: having an emergency fund can be important to keeping good credit. When big, unexpected expenses come up—like a major car repair—if you don’t have money tucked away to pay for it, that expense might need to go on a credit card.

Make a budget and stick with it. Just like having an emergency fund, having a budget helps ensure you don’t overspend or accidentally put yourself into more debt than you can handle. Take a close look at what you’re making and spending each month, then draw up a reasonable budget (be sure to include saving for that emergency fund). Next, keep track on where you’re overspending and adjust your budget until it works for you.

If you want to buy something that just doesn’t fit in your budget, save for it! Try this. Instead of making a big purchase on your credit card, save up for it until you can buy it with cash. You can then enjoy your special purchase, guilt free!

Even better, if you have a credit card that awards points or rewards based on purchases—buy that special something with your credit card and use the funds you put aside to save for it to pay off the credit card purchase.

Check your credit report regularly for errors. It’s not good enough to just be aware of what a credit report is—it’s important that you take a look at it annually to make sure it’s accurate and free of errors. Inaccuracies can be reporting mistakes made by the company or financial institution that provided the information to the credit bureau, or they can be due to identity theft. Either way, it’s important to know about them and know how to correct them.

Take Control of Your Financial Well-Being

One of PenFed’s primary objectives is to be a financial provider that helps our members Do Better. If you feel a bit daunted by this financial checklist of do’s and don’ts—don’t be. The main purpose of this feature is not to overwhelm, but to empower you.

Whether you’re just starting to build credit, need to improve poor credit, or want to continue to build upon the good credit you’ve already established—being mindful of the way you manage and maintain your credit is one of the most important steps you can take to improving your overall financial well-being. It may take some time, but the effort is well worth it!


Want to Learn More About Your Credit Score?

Check out The Ultimate Guide to Understanding Credit Scores.