The generation that was once thought to be credit-adverse is proving us wrong as they age—in just four years, millennials raised their average credit card debt by 40%. According to Experian data, in 2019, millennials across the United States carried an average credit card debt of $4,889.

So, why is millennial credit card debt trending upwards? It could be that the generation who lived through the Great Recession is starting to become more comfortable paying with plastic—a practice that, if done responsibly, could help millennials build the credit they need to secure loans, mortgages, and credit cards. Especially for younger millennials who may be relatively new to using credit, it’s important to understand exactly how to use the system to your advantage to improve your credit score and rack up rewards. 

Why is it important to build good credit? 

Building good credit is an important aspect of maintaining your financial power and flexibility—it not only opens the door to financial possibilities (such as home and car ownership), it also gives you a safety net in case of emergencies and even offers financial rewards (such as cash back). 

Unfortunately, according to a 2019 report, 58% of millennials say they have been denied a loan or line of credit because of their credit score—the highest denial rate of all generations surveyed. Without a robust credit history, millennials are likely to secure loans with higher annual percentage rates (APRs), or worse, not secure loans at all. This is detrimental when it comes to applying for quality credit cards, car loans, and mortgages. 

Using Credit Responsibly: How to Build Credit & Improve Your Credit Score 

To build good credit, you’ll need to understand how your credit score is calculated. Most scoring models calculate your score based on your payment history, average account age, the types of accounts you have, how often you apply for new credit, and how much revolving credit you use. These factors all help lenders determine whether you’re able to handle new credit responsibly. 

You’ll start by checking your credit score online using one of the three major credit reporting agencies—Experian, Equifax®, or TransUnion®. To do so, you can use to request a free credit report. This is considered a “soft inquiry” which doesn’t impact your credit score. 

Although credit score ranges vary depending on the scoring model, you’ll likely fall somewhere between 300 and 850 (the range seen for FICO® Scores). Typically, scores between 670–739 are considered “good.” Lower scores indicate a higher risk to the lender, while higher scores reflect a better credit history. The credit report you receive will also tell you which factors are impacting your score the most. This will help you understand which changes you need to make in order to improve your credit score.

You’re entitled to request a free copy of your credit report from each of the three major credit reporting agencies once a year. It’s wise to request a credit report from all three agencies as each one may contain discrepancies or inaccuracies. If you catch an error, you can request a dispute from the agency within 30 days of receiving your report.

Top 3 Tips for Improving Your Credit Score

Now that you know what your credit score is and the factors that are used to calculate it, you can start making changes to your financial habits to improve your credit score. 

By keeping in mind the following tips, you’ll see an improvement in your credit score over time:

1. Pay Off Debt and Keep Revolving Credit Balances Low 

Your credit utilization ratio is among the most important factors in many credit scoring models. This ratio is determined by adding up all of your credit card balances at a given time, then dividing that amount by your total credit limit. You should aim for a credit utilization ratio of 30% or less to show lenders that you haven’t maxed out your credit cards and can manage your credit well. To reduce your credit utilization ratio, you’ll want to pay off debt and keep credit balances low.

2.  Pay 100% of Your Bills on Time

Another major factor that impacts your credit is whether or not you pay your bills on time. This includes credit card bills, loans, rent, utilities, phone bills, and more. The best way to stay on track is to take advantage of the many resources and tools available to you—for example, many services now allow you to set up automatic payments or calendar reminders.

3. Be Strategic About When You Apply for Credit and When You Close Unused Credit

This tip goes back to your credit utilization ratio. Although it may seem like a good idea to apply for multiple credit cards to increase your overall credit limit, the act of applying for a credit card requires a hard inquiry, which creates a temporary drop in your credit score. Make sure to avoid applying for multiple credit accounts during a short period of time to prevent significant damage. 

Along a similar line, it’s wise to keep credit card accounts open if they aren’t costing you money. Closing a credit account can increase your credit utilization ratio and cause the average account age to drop—both of which can cause a decrease in your credit score.

Focusing on these three tips first will help you make significant improvements to your credit scores over time. With patience and consistency, you’ll be able to start enjoying the financial freedom, flexibility, and rewards that credit can offer!