Bill Pay and Credit: What Millennials Need to Know

Millennials, the generation born in the 80’s and 90’s, are doing things differently. They are more tech savvy than previous generations, spend more time on social media, and account for over a third of today’s workforce.

They also have the lowest credit scores of any generation in history.

Millennials may be the most educated generation yet, but their knowledge on credit is hardly a passing grade. According to a recent study by Experian, most millennials estimated average credit scores incorrectly, and over a third did not know their own credit score. While most people do know that their bill payments affect their credit, they have no idea which payments matter or why. In fact, 67% of millennials said they don’t understand how credit scores are created at all.

So, what affects a credit score, and which payments matter?

FICO credit scores, the type most often used by lenders, uses the following categories to compose a score between 300–850:

• 35% — payment history
• 30% — amounts owed
• 15% — length of credit history
• 10% — new credit
• 10% — new credit mix

As you can see, payment history is the category that affects your credit the most. The payments considered, though, are only the payments you make on money you’ve borrowed, like credit cards or loans. Making these payments on time will help you build good credit, especially if you consistently do so over time.

Unfortunately, paying bills like rent or utilities on time won’t count as good payment history. But, forgetting to pay or paying late will hurt your score and cost you more money in the long run. These delinquent payments will be sent to collection agencies, who then report your prolonged delinquencies to the major credit bureaus. Even payments like gym memberships or unpaid traffic tickets can be sent to collections, and if left unresolved can negatively affect your credit.

This makes paying ALL your monthly bills on time an important part of building good credit habits.

While it might seem obvious to pay your bills on time, the reality is that many people do not. According to research conducted by Fiserv, 36% of people do not pay their bills on time, with 46% of them failing to do so because they waited until the last minute or simply forgot the due date. Millennials specifically are prone to paying bills late, furthermore they are more likely to pay late than any previous generation.

Fortunately, for young professionals looking to improve their credit, we have a few simple tips to help improve their credit starting today. It all begins with good bill payment habits.

1. Automate your monthly bills.

Automating monthly payments is the first step to building and maintaining good credit. This will help you avoid forgotten payments, bills sent to collections, and costly late fees.

One way to automate payments is to set all your bills to auto-draft directly from those accounts. Another helpful tool is to set reminders on your phone, or create google calendar alerts to make sure you pay your bills on time.

The downside of these options is that automated bills may all be on different days of the month, making it harder to create a monthly budget. This is where bill consolidation comes in handy, which you can do using OnePay. With just one payment at the beginning of each month you’re guaranteed to never miss a payment or pay a late fee. On top of that, once you pay you’ll know exactly how much disposable income you have for the rest of the month and can plan accordingly.

Research on payment habits shows that no matter how responsible you normally are, it’s likely you’ll forget to pay a bill at some point. People’s lives are hectic and cluttered, and things like bills often fall to the wayside and forgotten. If you automate everything, you’ll avoid late fees, reduce overall risk, have better credit and worry less.

2. Build credit history by paying rent on time.

Once you’ve automated all your bills, you can use these good habits to your advantage. Making on time payments on your debts, such as loans on your car or home will create good payment history. For the majority of Millennials who don’t make such payments, there is a great alternative.

Experian now offers a way to build credit history by paying your rent on time. Experian won’t do this automatically, but anyone can easily opt-in to having their rental payments reported. To do so, simply ask your landlord or apartment to report your payments. Alternatively, you can pay your rent through one of their many business partners, like RentTrack. You can even go one step further and set those services to auto-pay, or link them to your OnePay account. This program is a great option for people who don’t have loans, or who currently have low credit scores. Rent is something that almost everyone has to pay, so you might as well make sure that your good payments are going to work for you.

3. Prioritize paying off debt

Payments that chip away at debt are the payments you should prioritize. Debt in any form, whether it’s old unpaid parking tickets, loans, or medical bills, will ultimately hold you back financially. Paying them off as soon as possible is a necessity for good credit, and for financial freedom.

Automated payments, or using a service like OnePay, can help you easily create a personal budget and prioritize paying off your debts. Take a good look at where your money is going and see if you’re spending too much. Unnecessary services or purchases can eat up money better spent paying off debt.

Let’s consider the “latte factor,” a term coined by financial author David Bach. The latte factor shows that small things add up, and making small changes can get you big results. For example, spending 2–5 dollars at Starbucks might not seem like a lot each day, but think about how much you could save over a 30 day period. That could be up to 150 dollars more per month towards paying off debt, just for giving up lattes! Take a hard look at what you spend your money on, and get creative on ways to cut back — your future self will thank you for it!

OnePay is a free bill paying service that consolidates your monthly bills, and helps you pay less. By analyzing your trends and data, we find you ways to save on monthly bills by up to $1000 a year. You can sign up for easy bill pay here, or learn more at justonepay.com. For more on saving money, personal finance, fintech trends, and more, follow us on Twitter: @JustOnePay.