Millennials are applying for credit cards more than most age groups, but they’re not qualifying for them, according to consumer behavior data by ID Analytics, a consumer risk management firm.
One in five people ages 23-27 have been declined for credit multiple times in a year, and it’s not because they don’t have a high enough income. A lack of credit history or low credit scores are leading to the denials, despite the applicants often having an ability to repay.
Being declined for credit makes millennials less likely to apply again for credit cards, with more than six out of 10 who are declined not applying again for at least 12 months, researchers found. Only 10 percent re-apply to the same lender once they’ve been declined.
ID Analytics found that 67 percent of consumers under age 30 have a subprime or non-prime credit score. A lack of credit history led to 33 percent of people in the same age category not having any credit score at all.
A possible solution Credit scores are used to predict a borrower’s ability to repay their debt. With many millennials earning enough money to repay credit card debt, there’s a mismatch between the risk in traditional credit score modeling and the finances of people under 30.
Part of the reason may be that credit scores don’t use modern data such as cellphone bills, utility payments and online lending activity. One solution to this has been the FICO Score XD, a new model for credit scoring that uses alternative data sources.
Millennials are a generation that wants credit. Among other generations, millennials are applying for credit cards at higher rates — 35 percent for millennials vs. 29 percent for Generation X and 28 percent for baby boomers.
Without credit cards and other forms of credit, they may be unable to build credit histories that can help them qualify for better loan rates for cars and home mortgages. Or they may simply miss out on being approved for a travel rewards credit card at a good interest rate.
Waiting a year to apply for a credit card because you’ve been denied once shouldn’t stop someone from trying to improve their credit score. Hopefully lenders will use cellphone bill payments and other nontraditional credit scoring data to decide how credit worthy a young applicant is.