If you are between 18 and 34 years old, you’re officially part of the millennial generation. This year for the first time, millennials are also expected to surpass Baby Boomers in total population — numbering 75.3 million vs. 75.9 million Boomers. These are the basic numbers: behind the scenes, younger Americans are using credit differently than their older counterparts.
Millennials have the lowest average income, credit score and lowest amount of debt of any other U.S. generation, including Baby Boomers and Gen X (ages 35-50).
A recent report from Experian highlighted some of these generational differences. For example, the average millennial credit score was 625, almost a hundred points lower than the 709 average for BabyBoomers.
Millennials are Wary of Credit Cards
Over a third of millennials have never used a credit card, vs. only 13 percent among older generations. Experian’s long-term study discovered that millennials were opening new bank card accounts at only half the rate of Generation X counterparts at the same age.
David Pommerehn, senior counsel with the Consumer Bankers Association, said that many millennials grew up during the recession, becoming extremely concerned with “jobs and debts and paying off bills.” Jamie Primeau, a 23 year old Middlesex, NJ resident, confirmed this opinion, telling Bankrate.com that it was “a relief not to deal with paying a credit card bill every month.”
Student and Auto Loans More Common than Credit Cards
Millennials are focused on the basics: transportation and education. It’s no surprise that student loans make up 20 percent of the new credit accounts for younger borrowers, according to MarketWatch. Student debt increased every year between 2008 and 2013, with an average loan amount of almost $27,000.
About 14 percent of new accounts opened by millennials in the past year were auto loans, a much higher rate than only 1 percent of auto loans taken out by Gen X at the same age 15 years ago. Student loans and auto loans together are not enough to overcome a “thin” credit report resulting in a lower score.
Drawbacks of Lower Credit Use
A 26 year old Dallas resident, Allen Walton, learned about the drawbacks of lower credit use when he tried to borrow $5,000 to buy a used car. His only loan option was financing directly through the dealership for 6.7 percent interest. He had avoided credit cards to be frugal, had $30,000 in savings, and was earning $60,000 a year. He still had to buy an extended warranty to qualify for the dealer plan.
Trouble with a car loan isn’t the only drawback to low credit scores resulting from a “thin credit report.” Even though you could have been living within your means like Allen Walton, you could risk higher insurance rates, higher auto loan rates, and problems with renting a new apartment, getting a better job or turning on utilities, as we reported in May.