Age Before Beauty, Credit Worthiness Before Youth

A timeless adage among loan underwriters is that older consumers are more credit worthy than younger consumers. This adage seems to hold true when looking at the latest FICO® Score distribution by age group. In general, older consumers score higher than younger consumers.

Keep in mind that age is not considered in the FICO® Score. But when we look at typical behavior according to what predictive credit data IS considered by the score, it makes intuitive sense why the younger generation has lower credit scores. Comparing the 60+ age group to those in the 18-29 group, we find:

• Payment History. More younger consumers have a missed payment on file, and on average, the missed payment occurred more recently than for older consumers. This is significant because on-time payment is the #1 factor influencing a FICO® Score.
• Amounts Owed. Younger consumers have higher average utilization of both revolving and installment loans. Our research consistently shows that this behavior correlates to higher risk.
• Length of Credit History. Older consumers have longer credit histories—as one might intuitively expect. In general, longer credit history equates to higher credit worthiness.
• New Credit. Fewer older consumers are searching for credit and opening new accounts. Our research shows that the recent opening of credit accounts represents greater risk, especially for those without long credit histories.
• Types of Credit Used. Young consumers have less of an opportunity to build a diverse mix of credit. Though this is not an important category in the FICO® Score, it can contribute to lower scores.

We used the facts above to set the table for more interesting analysis, looking at how the Great Recession influenced behavioral shifts for consumers in these age groups. Our findings will be the topic of my next post.