\n
![](\"https:\/\/fortune.com\/img-assets\/wp-content\/uploads\/2024\/03\/GettyImages-1369725083-e1711397897628.jpg?w=2048\")
<\/p>\n [ad_1]
\n<\/p>\n
Credit scores have long been viewed by critics as arbitrary\u2014mostly because there are so many factors that affect them \u2014and some people even view them as discriminatory<\/a>. Yet, they\u2019re a necessary evil<\/a> to get what Americans want most: homes, cars, and lower insurance rates.\u00a0<\/p>\n It can take years to build a robust credit file needed for what\u2019s considered a \u201cgood\u201d score (above 700), which many young consumers don\u2019t have. But a new report by Open Lending<\/a> and TransUnion<\/a>, one of the major credit reporting agencies, shows that millennials and Gen Zers are \u201cpoised\u201d to move up credit tiers. That may be hard for these younger generations to believe, however, who just don\u2019t feel as good about the economy and their finances, a phenomenon that has been called the \u201cvibecession<\/a>.\u201d<\/p>\n It\u2019s no wonder that millennials and Gen Zers don\u2019t feel great about their credit scores. After all, many lenders are \u201chesitant to extend loans\u201d to borrowers with \u201cthinner credit files,\u201d said Kevin Filan, senior vice president of marketing at Open Lending. These are consumers with low credit scores or who just haven\u2019t had years of credit to prove they\u2019ll pay their loan back.<\/p>\n However, millennials and Gen Zers are actually a \u201cstrategic consumer segment [that] shows immense potential for upward credit mobility compared to their older counterparts,\u201d Filan said in a statement. \u201cThe financial institutions that intelligently address these \u2018emerging prime\u2019 borrowers through comprehensive data analysis and decisioning can generate higher-yielding loan opportunities and long-term customer loyalty.\u201d<\/p>\n In 2023, the average credit score in the U.S. was 715, according to a January report by Experian<\/a>, one of the major consumer credit reporting companies. That score is considered to be right at the top of the \u201cgood\u201d credit band, just a few points shy of an \u201cexcellent\u201d credit score.\u00a0<\/p>\n Millennials and Gen Zers, however, average lower credit scores. Millennials average a credit score of 690, and Gen Zers come in at 680. For reference, the qualifying credit score for most conventional home loans is 620, according to Rocket Mortgage.<\/p>\n There are five main factors that affect your credit score, Kendall Meade, a financial planner with personal finance company and online bank SoFi<\/a>, tells Fortune<\/em>. This includes payment history, credit utilization, credit history length, credit inquiries, and types of credit.\u00a0<\/p>\n Interestingly enough, the Open Lending and TransUnion<\/a> report also shows that millennials and Gen Zers are actually poised to improve their credit scores more quickly than Gen X<\/a> or other older generations. Using data from more than 4 million U.S. consumers, they found that 30% of millennial and Gen Z thin-file consumers moved up credit tiers within two years, while just 22% of older generations did. That largely has to do with credit length and payment history.<\/p>\n That\u2019s because younger generations are starting from scratch, Joseph Camberato, CEO of business lending firm National Business Capital<\/a>, tells Fortune<\/em>. They start out with a blank slate and comparatively not much debt.\u00a0<\/p>\n \u201cWhen they handle their first credit card or auto loan responsibly by paying on time, their credit score shoots up quickly. This good track record makes it easier for them to get loans in the future,\u201d Camberato says. \u201cOn the other hand, older generations like Gen X and baby boomers might have piled up more debt over the years, which takes longer to deal with on their credit reports. Plus, as they slow down on spending, they\u2019re not as focused on boosting their credit.\u201d<\/p>\n But just because someone is a member of a younger generation doesn\u2019t automatically mean their credit score will improve. They still have to pay off their credit cards in full each month\u2014and charge only what they can afford, Meade warns.\u00a0<\/p>\n \u201cWhile this trajectory is good news for younger consumers it is very important that they stay on top of their debts,\u201d she says.<\/p>\n<\/div>\n\nA breakdown of younger generation credit scores<\/h2>\n
Subscribe to the CFO Daily newsletter to keep up with the trends, issues, and executives shaping corporate finance. Sign up<\/a> for free.<\/div>\n