Building credit is key for Millennials ahead of first home purchases.
Each week, Consolidated Credit searches for financial research that can help you deal with your debt and budget. This week…
The interesting study
In last week’s study we took a closer look at debt by generation. This week’s featured study from the credit experts at Experian follows it up nicely with a focused look at consumer credit scores by generation.
The big result
Millennials have some work to do when it comes to building credit – particularly for those who are working towards the goal of buying their first homes. According to the study, the average Millennial has a 625 credit score. While that may not be low, it’s not as high as it really needs to be either – in fact, it doesn’t even come close to the 700 Experian defines as a “good score.”
The fascinating details
It’s important to remember that every credit bureau has its own proprietary version of your credit score, and that each of these versions differs slightly from the FICO score used in most lending decisions. However, all scores are based on the same basic formula so they judge you on roughly the same scale.
For Experian, credit scores range from 330 to 830. Most people have scores that fall into the 600-750 range and a 700 is considered a good score to have. Interestingly enough, this means that Millennials aren’t the only ones who could use a better credit management strategy. Gen X only averages a 650 Experian score – so even the next generation up isn’t where they need to be when it comes to maintaining a good score.
Only Baby Boomers average a score above 700 – their scores average 709, to be exact. The national average overall is 667, meaning that right now the average American only has a fair credit score. That means their household typically can’t qualify for low interest rates and attractive terms you see advertised for loans and new credit cards.
What you can do
“Building credit as early as possible in life is a key component of financial success,” says Gary Herman, President of Consolidated Credit. “Millennials are reaching a point where many are actively working towards buying their first home. A good credit score is critical for easier mortgage approval and the lowest interest rate possible on such a sizeable financial investment.”
Just how much does a fair credit score cost you?
On a modest 30-year mortgage for $100,000, a FICO credit score of 625 would likely qualify for around 5.351% APR. Over the life of the 30-year loan the borrower would pay $101,051.34 in total interest charges. By contrast, if that same consumer had a FICO score just one tier higher at a 650, they could qualify for a 4.805% APR at today’s rates, saving $12,063.00 on interest charges. What’s more, with a “good” FICO score at 700, the buyer could qualify for 3.984% APR and save $29,513.74 in interest over the life of the loan.
As you can see, no matter your age or generation, maximizing your credit score is key to your financial success. You can qualify for the best rates and terms, which makes it easier to avoid overpaying on interest charges as well as making it easier to manage your debt effectively.
For tips on building credit, visit Consolidated Credit’s Building Credit section of this website. We also have a comprehensive guide to Credit Scores if you need more information on how scores are calculated and used by lenders. If debt is holding you back from achieving the credit score you want, call Consolidated Credit today at 1-888-294-3130 or complete an online application for a free confidential debt evaluation with a certified credit counselor.