Understanding different types of borrowers' approach to credit is crucial for lenders' long-term success. As the credit space continues to evolve through new legislation and technologies being introduced, insight into how different age groups use credit can help mitigate risk and improve application processing.
A new report from Experian shows that members of the largest age segment of the U.S. population, Millennials, have been slower to build credit than those of previous generations and rely less on the use of credit cards. The report also noted that despite this fact, Millennials are now starting to pursue more auto and student loans. Student loans comprise 24 percent of all new accounts for Millennials, while auto loans make up 14 percent of all recently opened accounts for the population segment. Comparatively, Generation X had 20 percent of all new accounts made up of student loans at the same age, and auto loans made up only 1 percent of new accounts.
The report also argued that despite having access to more tools and information, Millennials are "much less savvy" than their predecessors when it comes to credit management, meaning lenders need to ensure that the proper protections are in place to safeguard their investments.
"Given the significance Millennials play in financial services and the credit marketplace, it is crucial to understand this influential consumer segment and how they use credit as a tool," said Michele Raneri, vice president of analytics and business development in the news release. "While this generation may not look like they are on the right track financially, it's important to keep in mind that credit scores are built on credit experiences, and while this generation has been slower to use credit, they have plenty of opportunities to build a positive credit history."
Serving underscored or no-history borrowers is a challenge, but one that can be overcome with the right risk management software and policies. Contact GDS Link today to see how we can help equip your organization to better serve its clients of all ages.