Page 9 - Equity Movement Magazine-Issue2
P. 9


     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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