FORTUNE — Last week, I wrote about your many, many credit scores. how to know one from the other, and how to move them all in the right direction. That’s all well and good, but it will all go much more smoothly if you get off on the right credit foot initially. And unfortunately, that’s something many millennials aren’t doing right now.
If you’re expecting to hear yet another tale of how this generation of irresponsible twentysomethings are blowing their budgets, you’re in the wrong place. The data doesn’t bear that out.
According to Experian’s 2013 State of Credit report, released late last year, baby boomers tip the high end of the scale. They carry an average balance of $5,347 on their (again average) 2.66 credit cards. Millennials carry $2,682 on their 1.57 cards. Generation Xers and members of the Greatest Generation fall somewhere in between. Millennials aren’t even highest when it comes to late payments — that dubious honor goes to the Xers.
And yet, when you look at average credit scores? Millennials, at just 628, have the lowest average on the list. They’re more than 100 points lower, on average, than the Greatest Generation at 735. (Boomers average 700 and Xers 653, for those of you looking to see where you measure up.)
So what’s the problem? Utilization. This factor — defined as the percentage of credit you have available to you that you’re actually using — is responsible for about one-third of your credit score. Ideally, you want to keep that percentage under 30%. Millennials are at 37%.
It’s a conundrum. As a parent, I don’t want my kids too comfortable with credit, loading up their wallets with cards and using them with abandon. But looking at these stats, it’s clear that if millennials had more cards in their wallets — but continued to use them sparingly — they’d have substantially better scores. And those better scores would help them get better rates on auto loans, mortgages, insurance, and other credit cards going forward. In other words, they’d save them real money.
So as a parent — or someone in or entering your 20s
yourself — what do you do? A few suggestions:
- Get a credit card. Or help your child get one. “All the parents who are weaning their kids away from credit and forcing them to use debit cards are [making a mistake],” says Maxine Sweet, vice president of consumer education at Experian. “Just like you need academic credentials you need credit.” Under the Card Act, if you’re under 21 you’re not supposed to be able to get a credit card unless you have the income to prove you can manage it or can get someone over 21, a parent being a likely choice, to co-sign. (I say “supposed to” because, according to John Ulzheimer, credit expert at creditsesame.com. “the Card Act has more holes than Swiss cheese.” He’s seen college students get around this requirement by lying about their income and having friends co-sign.) I’m not a fan of co-signing, but there is another way: Add a child to one of your own credit cards as an authorized user. Just make sure that the issuer will report on behalf of the child to the credit bureaus.
- Understand how much you can/can’t use the cards you have. As I said, 30% is the line when it comes to utilization. If you can see you’re going to cross it, either request an increase in your credit limit or — if you’ve proven to yourself that you can handle having credit — get a second card. (You’ll want to use that one, too, but sparingly. Just enough so that the issuer doesn’t quit you. Then be sure to pay it off entirely every month.)
- If the thought of getting another card rubs you the wrong way (i.e. if you tune into Dave Ramsey on a regular basis) and you know your utilization is creeping up there over the course of your monthly billing cycle, try this: Pay your bill in-between. Sweet explains that’ll reset the clock and help boost that portion of your score. If you’re carrying a balance, it’ll save you some scratch on interest as well.
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