Millennials have the least understanding of what impacts a credit score than older generations, but that isn’t stopping them from trying to improve their credit, according to a recent study.
Millennials (ages 18-34) check their credit scores the most and are the best at actively trying to build or improve their credit, according to Discover’s 2018 Credit Health Survey of U.S. consumers.
Having good credit can make financing a home or auto loan easier, along with getting a job or simply opening a cellphone contract. Understanding how credit scores work can help consumers know how they can improve their financial health.
Age a factor in credit awareness
The older someone is, the more likely they are to have a high credit awareness, meaning they can identify what influences credit score ranges, the credit health survey found. The survey was done in June 2018 of 2,000 U.S. adults.
Many factors influence credit scores. Among them are payment history, credit utilization, length of credit history, new credit and total accounts open. More people are aware of these factors, but many still can’t fully identify everything that affects credit scores.
The survey found that just 20 percent of respondents were able to identify all of the primary factors. A little more than 25 percent knew that a credit mix was a direct factor, and 52 percent said their credit payment history impacted their credit.
Baby boomers (age 55 and older) were the most likely to completely understand the primary factors that impacted their credit standing, at 28 percent. Generation X (age 35 to 54) was next at 19 percent and millennials were the lowest at 12 percent.
But more people know their credit scores
While many people don’t fully understand what makes up a credit score, most know what their credit score is.
The survey found that 85 percent of people are aware of their credit standing, up 12 percentage points from 2017.
Baby boomers have the highest awareness of their credit standing — 91 percent — followed by 86 percent of Gen X and 77 percent of millennials.
Credit scores are easy to check, with Discover and other credit card companies and financial websites offering consumers a free look at their scores. The services offer soft credit pulls that don’t hurt users’ credit scores.
Millennials check the most
Maybe because it’s easy to check a credit score on a smartphone, or maybe because they’re just starting their financial lives and want to start it on the right foot, but for whatever reasons, millennials are checking their credit scores more than older people, according to the survey.
Seventy percent of millennials checked their credit score more than once in the past year, compared to 67 percent of Gen X and 61 percent of baby boomers. Overall, 82 percent of consumers checked it at least once in the last year.
Some obsessive people — 12 percent — checked their credit score 12 or more times in the past year.
Older consumers may be less worried about their credit score than younger people because many of the older consumers may already have good scores. More than half of baby boomers reported having an exceptional credit score of 800 or higher, compared with 28 percent of Gen Xers and 11 percent of millennials.
Ways to improve
The good news is that 71 percent of the Discover survey respondents said their credit score is in the good to exceptional range, meaning 670 or higher.
Still, 61 percent of consumers are actively trying to improve their credit score, the survey found.
The best way to do that is to pay your bills on time and use less than 20 percent of the credit available to you. Called credit utilization, the ratio can be as high as 30 percent before it can lower a credit score. Using too much of your available credit can be a sign of repayment risk.
Having different types of credit accounts can also improve a score. In addition to a credit card, it can help to have an auto loan that you make on-time payments to each month, or another credit card that you pay off each month.