Once Millennials Are Denied Credit, They May Not Be Back
Millennials may give up on obtaining credit once they’ve been declined. In fact, 6 in 10 will not apply for credit for at least a year following a denial, according to a recent study from ID Analytics.
The study also found Millennials are often declined for credit due to a lack of credit history or low credit scores–even when they have the ability to repay the debt.
While they may be easily discouraged, Millennials are still applying for credit at higher rates than GenXers or Baby Boomers. Millennials also make up a larger number of credit card applicants (35%) than marketplace loan applicants (28%), which indicates that Millennials are interested in traditional credit cards.
The problem seems to be that fewer than half of Millennials have credit scores high enough to be approved for a credit card with a mainstream lender. One-third do not have a credit history, and for those that do, two-thirds have subprime or non-prime credit scores.
“Traditional credit scores may have served previous generations well, but their lack of visibility into critical modern credit responsibilities like the payment of cell phone bills leaves many millennials with incomplete or nonexistent histories at the major credit bureaus,” said Patrick Reemts, vice president of credit risk solutions at ID Analytics. “Without a complete picture of millennials’ credit, many financial services companies are turning away good consumers, and the bad news for financial institutions is that only ten percent of millennials will re-apply to the same lender once they have been declined.”
ID Analytics recommends that lenders go beyond the traditional credit score to better serve Millennials. Alternatives such as telecommunications and utilities payments can help prove that a borrower is credit-worthy, but these are not consistently reported to national credit bureaus.