How Not Driving Can Hurt Millennials' Credit Scores

By Gerri Detweiler

NEW YORK (—Kali Geldis hasn't had a car since college, when she drove a car her parents paid for. After graduation, she moved to New York City, where owning a car would just be an additional -- and unnecessary -- expense. She's part of a larger trend among young people who are not driving, or when they do, are driving less. As a result they may be missing out on an opportunity to help build strong credit scores.

The Federal Highway Administration found, for example, that the percentage of 14- to 34-year-olds without a driver's license increased from 21 percent to 26 percent from 2000 to 2010. And other research from the University of Michigan Transportation Research Institute reported that about 87% of 19-year-olds had their licenses in 1983, but 25 years later, only 75% did. The number of 18-year-olds with licenses fell from 80 percent in 1983 to 65 percent in 2008.

Whether that's because they, like Kali, live in cities where driving is probably more of a hassle than it's worth; they can't afford the expenses of a car on top of student loan payments and rent; or they simply don't see a need to drive because friends or family will help them out when they need it; it's probably safe to say that those without a driver's license don't have a car loan.

A car loan paid on time can be an important credit reference for someone who is just starting out. "Your (credit score) might take a short-term hit when you get a car loan because you acquired more debt, but after you've made a few payments it would help, and starts to improve very quickly," explains Barrett Burns, President and CEO of VantageScore Solutions. "It helps because it's another way of demonstrating a positive payment pattern."