Majority of Millennials Have Faced Credit Rejection
Aug 29th, 2019 @ 9:23 AM by Amber Nelson
Millennials are reporting higher rates of rejection for loans than older generations, according to a study by YouGov for Bankrate.com.
The study that polled 2,500 Americans found that roughly 6 out of 10 millennials (aged 23 to 38) say they have experienced a rejected application for car loans, credit cards, or mortgage loans. Most of those who have been denied (63%) received a credit card rejection.
Curiously, millennials do not have credit scores much worse than the net generation up, Gen X. Millennials have an average FICO score of 668, based on 2019 second quarter data from Experian. Gen Xers (those aged 39 to 54) have an average credit score of 688. Baby Boomers (aged 55 to 75) however, have much better scores with an average of 731.
Credit scores are based on several factors, including the length of credit history. The longer a person’s history of timely credit payments, the better the score will be. A short credit history may be counting against some millennials. This may be especially true as recent surveys have found that many of that generation are deliberately choosing to use debit cards over credit cards. That means there is less data to compile in a credit profile, which results in lower scores.
Millennials may also be having a harder time obtaining credit because of the 2010 CARD Act that was aimed at preventing lending abuses that occurred during the pre-Great Recession boom. Among the regulations in the law is a rule that credit card companies may not originate new accounts with consumers 21 or younger unless they have a job or a responsible co-signer. Many of the younger millennials may have applied for cards around this age and faced credit rejection.
While being denied a credit card may not have a significant financial impact on many consumers, auto loans and mortgage loans are a different story. Beefing up their credit scores may be a necessity for many millennials before they move forward with major life purchases.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.