As older millennials start to consider buying homes, establishing good credit is more important than ever. But with a spotty job market following one of the worst recessions in modern history, building that score hasn't been easy for this generation.
Recent research has shown millennials have an average credit score of 628, the lowest of any age group in the country and more than 50 points below average. But this isn't necessarily because they're financially irresponsible. Most have low credit and debit card balances, but relatively short credit histories and, thus, lower credit limits.
Here are some easy ways to start building your credit as a millennial:
1. Get a credit card
After watching friends and family struggle with debt and unemployment during the Great Recession, more millennials are saying no to credit cards and relying on cash and debit cards to make purchases. According to one recent survey, a whopping 63 percent of adults ages 18 to 29 don't have a credit card.
While it's true credit cards can be a double-edged sword, they are also typically the easiest type of credit to obtain and the quickest route to building a solid credit score, says Chris de Lorimier, a financial advisor on NerdWallet's Ask an Advisor platform. You may initially have a very low credit limit, but you don't need to spend a lot of money to build a credit history. Choose one low monthly expense, such as gas, and use the card only for those transactions.
Search tools such as this one from NerdWallet can help you find the right credit card. These sites make it easy to sift through hundreds of credit cards and their features in a matter of minutes. Many also offer tools like debt calculators.
2. Don't qualify? Try a secured card
If you can't get approved for a traditional credit card, don't fret. One alternative to help build your credit is what's known as a secured credit card, which requires a cash collateral deposit that becomes the credit line for that account.
"The deposit amount to secure the card could be as little as $250 to $300," says Dana Twight, a financial advisor on NerdWallet's Ask an Advisor platform. "Contrary to popular belief, they are not just for 'people with bad credit.'"
Make your payments each month, and you'll be approved for an unsecured card in no time.
3. Keep your balance low
Don't charge more than you can afford to pay off each month and be aware of the consequences of keeping a balance, particularly a big one, says Tracy Becker, a financial advisor with NerdWallet's Ask an Advisor platform.
"High balances make you a higher risk and cost much more in interest and fees," she says.
De Lorimier suggests not using more than 30 percent to 50 percent of your card's credit limit. But asking for a credit limit increase every year or so can bring down the overall balance/limit ratio and boost your credit.
4. Pay your bills on time
Late payments can have a major impact on your credit score. And it's not just late credit card payments that can ding your rating. Keeping up with loans, bills and other debt is also really important.
"It does take time, but everyone with a high 700s to 800-plus credit score started off with no credit, but were diligent in their payments over time," de Lorimier says.
5. Check your credit report regularly
Even if you don't think you have a credit history, Twight recommends pulling your credit report from one of the three major credit bureaus and taking a look.
You may find a medical bill from college you forgot about, or that the loan your parents co-signed with you has generated a record, and that could be dragging down your credit.
"Checking for medical debt is very important," Twight says. "One client of mine ignored a bill from another city on her report, as she had never been to that city. It turned out to be an old medical bill sent for collection. The health care provider's main business office was located out of her home state."
Some credit products are best avoided. In-store credit cards aren't typically a good deal, Twight says, because they can only be used in one place and the application will be noted on your credit report. Joint credit cards can be another big risk, as can opening a cellphone account or signing a lease in your name for a friend or loved one, says Becker.
"Credit is a tool to be used to have a better quality of life and reach future goals," she says. "Building and maintaining it well can help individuals build wealth in the future. A great credit score can save hundreds and thousands, if not millions, of dollars in interest and fees over a lifetime."