Millennials and Credit Scores: Here's Why Their Access to Loans Could Be Limited

Millennials — adults currently agest 18 through 34 — are disproportionately turned down for loan products because of “traditional” credit score calculations that favor consumers with more established payment histories, according to a new report by ID Analytics.
The biggest obstacle facing Millennials: They have lower credit scores in 80 percent of the categories that make up the most common credit scoring models such as FICO. Those categories include mortgages, auto loans, credit cards, and other installment loans. That’s because many of these young adults simply do not have any credit history with these financial products, with the exception of student loans.

The study by ID Analytics titled “Millennials: High Risk or Untapped Opportunity?” determined that those under age 27 are more likely to have a FICO score under 660 than older age groups.
The study reveals that while they apply for credit, Millennials are denied at a much higher rate – even though they outperform demographics within the same credit score range. Baby boomers and Generation X are two to three times as likely as Millennials to become delinquent in making a payment by 12 months or more, the study found.
“There are many Millennials that are low risk and provide a profitable opportunity for enterprises to expand their business,” the report states. “The Millennials are disproportionately turned down” in favor of “consumers with more established credit behavior.”
Credit Declines or Unattractive Offers
This limited view of Milliennials hinders lenders from understanding the full potential of these young adults — and often results in credit declines or unattractive offers that are rejected by the consumer — such as higher interest rates, deposit requirements, limited features.
“Using a score that includes alternative data from wireless providers, marketplace, or other online lenders will not only be more predictive, but also more predictive in the very industries millennials are seeking to start their credit relationships,” the report states.
ID Analytics points out that data from the Federal Reserve Board of New York shows that nearly 40 percent of people below the age of 30 years have a FICO score below 621, putting many of them in the subprime category, while others do not have credit scores at all.

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