Page 9 - Equity Movement Magazine-Issue2

CREDIT RESOURCE

Cautious millennials are

getting worse deals on loans

and credit cards

Source: Janna Herron, USA TODAY

illennials are financially cautious, and that could credit accounts usually have lower incomes and assets.
be making it harder for them to get low-cost Those trends are true for the silent generation, baby
Mloans or credit cards. boomers and Generation X, according to
VantageScore’s research.
Unlike older generations, many millennials are reluctant to
take on new debt even as their finances improve, But that doesn’t hold for millennials, VantageScore
according to new research from VantageScore provided found. Millennials with fewer credit accounts have
exclusively to USA TODAY. The problem is lenders still slightly higher or equal levels of income and assets
consider these conservative borrowers with fewer credit than those with more credit accounts.
accounts as riskier.

As a result, these debt-shy Who’s considered riskier?
millennials likely get worse
loan terms, like higher Borrowers with three or
interest rates and lower more active credit accounts
credit-card limits when they – called thick-file borrowers
do apply. In some cases, – are considered less risky by
they may even be denied lenders and receive the best
credit altogether if their terms. Those with fewer
histories include too few than three accounts – called
accounts. thin file – are considered
riskier and get higher
“This is a pretty prudent interest rates and lower loan
group of people,” says amounts.
Barrett Burns, president and
CEO of VantageScore, a But this may be an
developer of a credit score. “They tend to be more antiquated way of comparing borrowers, Burns says,
creditworthy than what their history suggests,” he says, given that many thin-file millennials have more, or at
adding “Maybe lenders need to rethink their lending least the same amount of income and assets as their
criteria based on the data we’re seeing.” thick-file counterparts. Many are just focusing on
paying down student loans before taking on new debt,
How Millennials are different? he says. Overall, these debt-shy millennials are good
borrowers, but they aren’t given the benefit of the
Typically, when a person makes more money and has more doubt by lenders.
savings, they add credit such as signing up for a new card
or taking on a car loan. That’s because they’re confident “The message for lenders is they need to lean into this
they have the financial wherewithal to pay back the debt. demographic and create the type of financial products
that works for them,” he says. “Maybe a secured
That means people who have more credit accounts tend credit card for someone new to credit with a low limit
to have higher incomes and assets. And those with few may not be suitable for this group.”

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