By Neil Shah
Young people are becoming warier of borrowing — but they’re also getting worse at paying bills.
Despite aggressive courting by credit-card companies, young adults ages 19 to 29 — the so-called Millennial generation — have around 1.5 credit cards on average, fewer than the 2 cards of Generation-X borrowers (ages 30 to 46) and 2.7 cards of Baby Boomers (ages 47 to 65), according to an analysis of data provided by Experian, a credit-reporting firm.
Millennials carry a credit-card balance of $2,700 on average, below the national average of $4,500 and the roughly $5,300 level for people ages 30 to 65, though this is partly due to lower limits, says Experian, which sampled its consumer credit database.
Total debt among young adults actually dropped in the last decade to the lowest level in 15 years, separate government data show, with fewer young adults carrying credit-card balances and one in five not having any debt at all.
And yet, Millennials appear to be running into more trouble when paying their bills — whether on credit cards, auto loans, or student loans.
Millennial borrowers are late on debt payments roughly as much as older Gen-X borrowers, Experian’s data show. Millennials also use a high share of their potential borrowing capacity on cards, just like Gen-Xers, meaning they’re as likely to max out on cards.
Since Millennials tend to have fewer assets than Gen-Xers and other generations, as well as shorter credit histories, they end up with the worst average credit score — 628 — of any demographic group.
Millennials have “the worst credit habits,” and are “struggling the most with debt management,” Experian said in a report.
A slow-moving economy, high joblessness and tighter credit standards have blocked the availability and use of many types of credit by young people. A study by the Federal Reserve Bank of New York recently suggested high student-loan balances may have encouraged young adults to reduce their credit-card balances between 2005 and 2012.
Other young adults may be less willing to take risks in a weak economy, whether by splurging on furniture for a new apartment, moving geographically or starting businesses — things that often require debt.
What Experian’s data suggest is that the Millennials who are in fact borrowing are struggling to do so responsibly, at least partly because of the nation’s 7.3% jobless rate, sub-3% growth and $1 trillion student-loan tab — all things that are weighing disproportionately on young people, especially those without college degrees.
As the Journal reported last week, the share of student-loan balances that were 90 or more days overdue in the third quarter rose to 11.8% from 10.9%, even as late payments on other debts dropped. While the incidence of late payments on Millennials’ overall debts isn’t alarming yet, it’s big enough to drag down their credit scores, Experian said.
Millennials’ credit habits vary by state, however. Generally, states with the lowest average Millennial credit scores are in the South and Southwest, including Mississippi (590), West Virginia (602), Nevada (604), South Carolina (605), Louisiana (605), Arizona (605), New Mexico (606) and Alabama (606). Minnesota’s 660 was the nation’s highest.
The District of Columbia had the highest average credit-card balances among Millennials — at nearly $3,500 — followed by Alaska at around $3400. Utah and Iowa had the lowest, at around $2200.