Why young adults have the lowest average credit score

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Consumers of any age can have credit score problems, but these difficulties are more common among young adults. Americans aged 18 to 29 have an average FICO® score of just 659, the lowest of all age groups and 45 points lower than overall average credit score from 704.

Fortunately, there are plenty of ways for young adults to counter this trend. Here are the top four reasons why this group has a lower average credit score, along with what you can do to achieve a high score.

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1. It is more difficult to get approval for a card

The most effective way to get good credit is to use a credit card. It builds your credit history and, if you pay the bill on time, you also build a payment history on time.

One challenge for young adults is to get approval for a card in the first place. Since this group has a limited credit history and possibly limited income as well, it will be difficult for them to qualify for any of the best credit cards. This lack of a credit card prevents them from improving their credit rating.

If you are in this situation, it’s all about finding the cards you can qualify for. Two of the most popular options for young adults are:

  • secured credit cards, where you pay a security deposit to open the card; and
  • student credit cards, which are available to students.

You can also ask a family member to co-sign your credit card application.

2. They have a shorter credit history

Credit scoring systems place great importance on a long credit history. Someone who has been using credit for 10 or 20 years will be considered more trustworthy than someone who has only used credit for a year or two.

There is no workaround for this. The only way to lengthen your credit history is with time. However, you can avoid shooting yourself in the foot along the way. It’s not just your overall credit history that matters, but also the average age of all of your credit accounts. This means that you shouldn’t open too many new accounts or close your oldest accounts, as both will reduce the average age of your account.

3. They are more likely to pay late

Late payments have a very negative effect on your score. A late payments may affect your score once it is 30 days late. At this point, your account is considered past due and the creditor will report it to the credit bureaus. If you go 60 to 90 days without payment, the late payment will have an even bigger impact on your credit.

This is an area where young adults are more prone to problems than older adults. Delinquency rates on credit card payments are significantly higher among those under 30 than any other age group, and this is one of the main causes of their lower credit scores.

On the bright side, this is a scoring criterion that is 100% in your control. Avoid charging more than you can repay, and keep track of when your bill is due. You can also set up automatic payment to make sure you never miss a payment.

4. They don’t have as much credit available

Credit card companies are often reluctant to extend credit to young adults, especially when they’re not making a lot of money or when it’s their first credit card. For this reason, you will likely start with a credit limit of $ 1,000 or less.

The problem with a low credit limit is that it becomes more difficult to reduce your credit usage. Even charging a few hundred dollars on your card could push your credit usage too high and hurt your score.

To avoid this, be careful about how much you charge your credit cards, and make sure your balances never exceed 20-30% of your credit limit.

Don’t let your age hold you back

Several factors make it more difficult to build up credit as a young adult. At the same time, consumers in their twenties who have reached excellent credit scores. If you pay your credit card bill on time and don’t use too much credit, you are sure to join this group.

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About Nereida Nystrom

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