It's no secret that 20- and 30-somethings face some unique challenges when it comes to managing their finances. Between crippling levels of student loan debt and one of the toughest job markets in history, the pressure is on to make every penny count, and millennial credit scores are paying the price.

Cautious Approach Means Millennial Credit Scores Suffer

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Economically speaking, it's clear that today's 20- and 30-somethings are facing a major uphill battle. In response, they've become what one study called the most fiscally conservative generation since the Great Depression. While there's nothing wrong with erring on the side of caution, millennials are finding out the hard way how a better-safe-than-sorry approach can backfire.

Financial attitudes influencing spending patterns

When it comes to saving and spending, millennials take a drastically different approach in how they handle their money. While their parents may have shelled out big bucks for things like fancy cars, expensive homes and lots of "stuff" in general, the majority of Gen Yers prefer to spend their hard-earned cash on experiences. Instead of buying their first home, they're shacking up with Mom and Dad and using the money they're not spending on mortgage payments to pay for things like concert tickets and travel.

By allowing FOMO, or "fear of missing out," to guide their financial decisions, millennials are creating a ripple effect in the overall economy. The housing market, in particular, is one area where the absence of young buyers has had the deepest impact. Despite making major headway over the last year to 18 months, the market's recovery is far from complete and declining rates of first-time buyers are slowing its progress. Not only that, but the increasing demand for rental properties is pushing rent prices are to record high levels.

When you consider that the average student loan debt is right around $30,000 and that unemployment rates are highest among those who are 20 to 34, it becomes pretty obvious why millennials are choosing to stay away. Trying to pay the bills on an entry-level salary is hard enough so forget about trying to scrounge up enough money to cover a down payment. Even for the ones who want to buy a home, tighter lending restrictions mean more hoops to jump through to get approved for a loan.

What they're doing wrong (and right)

When it comes to things like planning for retirement, millennials are ahead of the game. Not only are they saving earlier, they're saving at a faster rate compared to baby boomers and Gen Xers. Their risk tolerance seems to be a little lower, based on their preference for cash investments as opposed to playing the stock market, but that's in keeping with their careful attitude.

Where millennials are making the biggest mistakes is in their approach to credit. The majority of twenty-somethings don't have a major credit card, opting to use debit cards or cash instead. That's nearly double the amount of adults 30 and older who don't have any plastic. Rather than viewing credit cards as a tool for establishing their credit history, young adults view them as a path for adding to their debt. While saying "no" to credit cards makes a certain amount of sense, millennials' credit scores are taking the hit.

Why credit scores matter

According to Experian, adults between the ages of 18 to 29 have the lowest credit scoresof any demographic. Part of that is attributed to the fact that millennials are more likely to pay their bills late or miss a payment altogether. Payment history accounts for 35 percent of your FICO score and every little ding counts. The fact that a significant number of young adults flat out refuse to use credit only compounds the problem.

A low credit score or a skimpy credit history makes it much more difficult to qualify for new loans of lines of credit. For millennials who decide they're ready to venture into home ownership, that can be a major stumbling block. If they're able to qualify for a mortgage at all, the odds of snagging the best interest rates aren't so great. Even a difference of a half a percentage point can add thousands of dollars to the cost of the loan.

Your credit score also comes into play if you're trying to buy a car, rent an apartment or get utility services in your name. The lower your score, the higher the odds are stacked against you for getting approved.

Improving millennial credit scores

A slow and steady approach is best for improving your credit score, especially if you're starting from ground zero. In fact, applying for multiple cards at once can actually cost you points. If you've never had a credit card in your name before, you could try to apply for a card on your own, but signing on as an authorized user may be the easier option. Getting your parents to add you on to their account allows you to piggyback on their credit until you reach the point where you can get a card in your name.

If you're not comfortable going that route, a secured credit card is another alternative. Secured cards require you to pony up a cash deposit, which serves as your credit line. As you charge purchases to the card, you'll have to pay down the balance to free up available credit. Once you've been making payments on a regular basis, you should be able to convert it to an unsecured card. Just keep in mind that secured cards may come with strings attached, since the fees and interest rate tend to be higher.

While credit scores don't seem to matter that much to millennials, that kind of thinking can sink your financial ship. As the economy continues to evolve, it's more important than ever that the younger crowd keep a close eye on those three little digits.

This article originally appeared on My Bank Tracker.

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