This post is sponsored by Lexington Law.
Do you know how you compare to the average millennial’s credit score? The old saying goes to avoid trying to “keep up with the Joneses”, which in essence means you spend money to buy more or better stuff, a bigger house, etc., to try to compare to your neighbors or friends. This is great advice, except that there are scenarios where comparison can provide motivation to make you work for better financial health.
Anyone who has enrolled in a 401(k) has likely at some point seen recommendations or projections of what they will have saved by a certain age if they elect to save a certain percentage of their income. At first, these numbers seem pointless when you are young.
In my case, I have been contributing to a 401(k) for seven years now. Now that I have seven years’ worth of savings in my account, when I log into my account I see how I compare to the average of my peers.
My dashboard displays what percentage of my retirement goal I will have saved if I continue at my current rate. At first, when I looked at the comparison of my goal percentage to my peers, I was stunned! It looked like I was doing a horrible job of saving.
That’s when I looked at the total dollar amount saved by me and the average of my peers. Mine was double the average dollar amount of my peers. I don’t say this to boast. In all honesty, my motivation to save for retirement is so that I have freedom when I won’t want to work long hours or maybe even at all. I also want to have comfortable care in old age.
While this post isn’t really about retirement savings, you should know that general comparison when it comes to your finances can be healthy and motivating. In this case, if you have never had a reality check on how you compare to the average millennial’s credit score, this post is for you.
Average Credit Score By Age
According to the 2016 Experian State of Credit, the average credit score for a millennial (ages 21-34) is 634. As you might expect, the average credit score rose by age, as people increase income and knowledge around credit. The highest average credit score belonged to the 70+ age group at 730.
An interesting piece of data from this study is found in the 20 and under age group. Their average credit score sat at 631. If you compare that to the average millennial at 634, it begs the question – what are millennials doing?
I have a theory. An older millennial that may be 31 or 32 now would have graduated college at the complete bottom of the recession. Jobs were hard to come by. If they came around, they were offering low salaries, because companies were struggling. Establishing and maintaining a good credit score has largely to do with making payments on time, which is tough to do when they were making little or no money fresh out of college and were also burdened with steep student loan payments.
College students have a couple things going for them as it relates to their credit score. In theory, they should be able to take out student loans to cover the majority of their living costs, thus reducing the amount they should be charging to a credit card.
They also benefit from lean perspective. Any college student who has paid attention to their tuition, rent, and living expenses knows they need to spend as little as possible to establish a reasonable financial picture upon graduation. They may not be charging much to their credit cards.
The college students that do use credit cards though, have often taken advice from their parents on which to get. Be careful when choosing a credit card to weigh all of your options and find the card that fits your needs best.
Knowing that college students are following closely behind, how do you stack up against the average millennial’s credit score?
Average Credit Score By Income
Age is one thing, but income is another factor influencing one’s credit score. Credit agencies are not directly comparing your salary, but the ability to pay your bills on time is often influenced by earning enough money each month.
WalletHub found that those making $30,000 or less in annual income had an average credit score of 590. Those making $30,001-$49,999 averaged a 643 score. Not surprisingly, those making $50,000-$74,999 had an average score of 737.
Personally, I think it makes sense that credit scores increase with income. However, in my experience, I would question whether the trend is a rule rather than exception for those in the $30,000-$50,000 category.
Bringing this back to the student loan conversation, the average 2017 graduate walked the stage with $39,400 worth of student loan debt, according to Student Loan Hero. The average twenty something is paying a minimum of $351 on their student loans each month. That same individual on a $30,000 salary is stretched very thin, after taxes, rent, groceries, and general living expenses.
That same person may have a situation like a sick family member in another state they need to see, which forces them to put the travel expenses on a credit card, because they don’t have emergency savings. This is where I think a credit score stands on sandy soil, waiting to be washed away by the first storm. Spending and budgeting certainly matter more, but income is a big piece of the healthy credit score equation.
What Should You Do About Your Credit Score?
Listen, if you read about the average millennial’s credit score and feel discouraged, know that the last thing I intend to invoke in my readers is shame. There is no shame in your current situation, it’s just a starting point.
Instead of seeing yourself as failing or behind your peers, see yourself as capable of overcoming more than the person next to you. Use this as a motivating wake up call to finally get your credit score and finances sorted.
If you need help repairing your credit score, Lexington Law has services that can help you right size your score. If you need more general financial and budgeting advice before you dig into your credit score, check out any of the money tags on this post or others on this website to see how you can get started.
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