Millennials are avid borrowers and spenders, and at the same time, they prefer to maintain a healthy credit score to avoid loan rejections and equated monthly installment (EMI) defaults.
Amit Das, Co-founder, and CEO of Think Analytics, says “Ask a millennial about their finances and spending habits. Be forewarned for the onslaught of groans and grumbles around the monotony of keeping accounts and the drudgery of economizing. Their attitudes towards money and investing differ from the previous generations—primarily because of the safety net provided by their parents.”
Having said so, experts believe this generation was also the worst affected by the recurring financial crises (2008, 2012-13, 2020) — at the start of their careers.
What affects credit scores?
Having a good credit score goes a long way. Das, of Think Analytics, says, “A good credit score is a gateway to a smooth financial life. No wonder, many individuals actively seek information to manage their creditworthiness.” To improve your creditworthiness, repaying loans on time is a great way to start.
According to industry experts, almost 6 out of 10 millennials are rejected when applying for credit cards, mortgages, car loans, and other financial products. In fact, millennials (ages 23 to 38) are experiencing higher denial rates than other generations.
Here are several factors that affect credit scores;
- What you buy and where you buy can impact your creditworthiness – hence, if you are trying to improve your credit score, you need to keep a tab on your spendings.
- Making late payments or prolonging your payments also affect your credit score.
- Maxing out on your credit card affects your credit score in a big way. When using your credit card, experts suggest not to use the full amount on one credit card.
- Canceling a credit card also affects your credit score.
- At the same time, applying for too many credit cards might have a negative impact on your credit score.
Having said that, avoiding credit altogether isn’t a good strategy if you’re looking to improve your score. Das, of Think Analytics, says, “For those struggling with poor scores, can look at credit companies offering options that include alternative data, which can help demonstrate financial health.” He further adds, “This will create a much wider and inclusive segment of people being able to get access to borrowing opportunities.”
Role of Alternative data for credit score
To benefit the section of people who are rejected by banks to offer credit, due to no credit history, the alternative data option gets them going. Das, of Think Analytics, says, “The combination of alternate and traditional bureau data will not only improve the new generated credit score of the potential borrower but also decrease the likelihood of credit default associated with the inaccuracy of traditional data.”
Experts say with this option, banks will be able to build new customized products to enhance customer experience, better understand and advise clients on financial needs, and assesses borrower’s risk profile more accurately.