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Credit vs. pay-as-you-go: What’s better for your finances?

By the U of A Cooperative Extension Service 

Fast facts

    • Credit scores evolving to account for bill paying
    • Financial track record important as creditors predict consumer behavior

(420 words)

LITTLE ROCK – In an effort to kept debt at bay, many consumers go through life paying as they go rather than relying on credit.

According to, 63 percent of Millennials -- the group aged 18-29 -- don’t have a major credit card. Twenty-three percent have one card, 6 percent have two card and 2 percent have three cards.

“Limited or no use of credit is an increasing trend among today’s consumers,” said Laura Connerly, associate professor and personal finance expert for the University of Arkansas System Division of Agriculture.

“However, it’s been tough for these non-credit folks to qualify for good interest rates or, sometimes, even to obtain loans,” she said.  “People who don’t use credit can’t build a credit history.”

Lenders use credit scores to determine eligibility for loan amounts and to determine which applicants qualify for the best interest rates – and those credit scores are based on use of credit or one’s credit history.

Credit bureau Experian says that the average credit score for Millennials puts them in subprime range -- which means they are not considered particularly good candidates for loans for big ticket items like cars and homes. 

However, there’s good news for consumers who have limited or no credit history. Connerly said that regular payments for phone and utility bills are being considered as proof of responsible money management behavior.

“It’s always been the case that late payments on any bill could ding your credit score but, until recently, regular payments of utilities didn’t help to improve your score,” she said. “The new scoring method is being pilot tested by FICO.”

Fair Isaac Corporation developed credit scores, or FICO Scores, that are used to determine the risk of lending to a potential borrower. Information collected by the three credit bureaus – Experian, Equifax, and Transunion – is used to calculate credit scores. Information can vary among the credit reporting bureaus so your score from each bureau may vary.

FICO scores have been around for more than two decades and scoring models have evolved over time. FICO data analysts determined that property records, telecommunications, and utility information are reliable predictors of a consumer who will be a good credit risk. The new credit scoring method is currently being pilot tested. FICO anticipates that it will be available more extensively by year’s end.

Connerly said it’s important for consumers to know their credit scores.

“You are entitled to a free annual credit report from each of the three bureaus,” she said. “Check one every few months to monitor your credit report throughout the year. “

Consumers can visit to obtain a free report.

The Cooperative Extension Service is your source for reliable, research-based information to improve quality of life. Discover the latest recommendations for creating a spending plan, managing credit, building your savings and investing for the future. Learn more at

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Media Contact: Mary Hightower
Dir. of Communication Services
U of A Division of Agriculture
Cooperative Extension Service
(501) 671-2126

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