Why Credit Education Is Important for Millennials

A young woman in an online class from home using her laptop.

Experian, TransUnion and Equifax now offer all U.S. consumers free weekly credit reports through AnnualCreditReport.com.

We hear quite a bit these days about the dire financial straits and general lack of financial sophistication attributed to adults ages 23 to 38, otherwise known as the millennial generation.

There is indeed evidence for concern, but a 2019 Experian study suggests millennials may be more self-aware than they get credit for. A majority of them acknowledge gaps in their understanding of debt and credit, and say they have a strong desire to learn more.

Rising Debt, and Desire for Improvement

Recent research finds millennials are increasing their debt levels at rates that concern some experts:

  • The New York Federal Reserve reported in February that millennial debt had increased 22% from 2013 to 2018, and now exceeds $1 trillion.
  • Much of that debt consists of student loans, as the average millennial student loan balance among millennials was $34,504 in the first quarter (Q1) of 2019, up 8% from the first quarter of 2018.
  • Millennials increased their average credit card debt by 7% in the past year, to $4,712. That's a relatively low average balance, but, given many millennials' relatively recent entry into the credit market, they may not be aware of the need to avoid high levels of credit utilization—the percentage of a card's borrowing limit represented by outstanding balances. Credit education can help millennials understand that credit scoring systems are highly sensitive to utilization, and that balances exceeding about 30% of borrowing limits can hurt credit scores.
  • The average FICO® Score for millennials is 668 as of Q2 2019, considerably lower than the U.S. average of 703. FICO categorizes a 668 credit score as "fair."

Many lenders view applicants with a 668 FICO® Score as subprime borrowers—eligible for a variety of loan types, but typically subject to relatively steep interest rates and fees. Credit education can help millennials see that increasing their credit scores by even a few points could lift them into "prime" credit territory, possibly making them eligible for a much wider array of loans and credit products under more affordable terms.

Signs of Growing Awareness

A 2019 Experian Boost®ø Consumer Survey found that millennials have a strong sentiment for improving their credit standing.

After trying Experian Boost—a free tool that lets people share phone and utility payment information so it can be factored into their Experian credit scores, often providing an instant boost to their scores—survey participants reported the following:

  • 53% said they "felt more motivated" to learn about their credit scores
  • 59% said they believed knowing more about credit management would be beneficial
  • 59% wanted to learn about credit through features like Experian Boost

Digital Tools and Credit Education

Recent Experian research found that digital resources are highly effective at informing, educating and energizing millennial audiences, so it's fortunate that a growing number of financial institutions and credit card issuers are making web- and mobile-based credit education tools available to customers. Many of these resources are tied directly to users' credit reports, and can provide highly specific information about factors that are hurting their individual credit scores.

Millennials (and users of all ages) can use these tools to improve their understanding of credit management and its relationship to credit scores and credit reports.

Other credit education resources available free (to millennials and all consumers) include:

Millennials are hungry for information that helps them understand the credit process and strategies for improving their credit. Fortunately, there are a number of resources available to boost their credit knowledge.