Risk & Compliance Research: Millennials Still Seek “Old School” Credit

Jun032015

In a previous blog post, we noted that some millennials are forgoing credit in favor of debit and other non-credit products. However, our most recent research reveals that credit is still vitally important for millennials, and they make up one-fourth of the credit population.

Millennials 1 Quarter Credit Population

Furthermore, millennials are looking for and opening new credit more than other age groups, as the chart below shows. Clearly, in spite of observed deleveraging, millennials remain the most likely age group to have credit inquiries.

Millennials 2 Search Open New Credit

We also found that millennials are most likely to open new credit cards and student loans.

Millennials 3 Credit Card Auto Mortgage

Not surprisingly, it’s the 35-49 year olds who are most likely to open a new auto loan or mortgage. As one would expect, consumers typically open credit cards and student loans earlier in life, while taking on mortgages later on when they’re more willing and able to take on larger forms of debt.

On average, millennials have more delinquent payments and shorter credit histories than other age groups. As a result, we observe a larger proportion of them scoring in the lower FICO® Score bands: roughly 28% of millennials score in the 300-579 score range, as compared to only 19% of the total population.

Millennials 4 Credit Score Bands

These low scorers represent the millennial segment most actively seeking credit, which we see from the fact they have the largest percentage of inquiries. But as poor credit risks, they are less likely to be approved for credit, which we see from their having the lowest percentage of new credit openings among millennials.

Millennials 5 Inquiries New Credit

Millennials scoring 580-669 have the largest percentage of account openings. This score band seems to be the “sweet spot” for lenders targeting credit-seeking millennials—reasonably creditworthy combined with a strong appetite for credit.

Looking at loan type, we see that the highest-scoring group of millennials opened the most new mortgages. This makes sense since mortgage loans tend to have higher eligibility standards than other loan types. Since lender score cutoffs for auto and student loans are typically lower than for mortgages, it could explain why the 580-669 group was most likely to open these loan types.

Millennials 6 New Credit Loan Type

So while some millennials may be deleveraging, and their banking habits may vary from other age groups, traditional credit continues to play an important role in the lives of many in this sought-after and economically critical demographic.

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