Don't use traditional consumer credit reports to assess millennials
If you're serving customers between the ages of 18 and 34, you're working with a generation that's challenging the traditional means of doing business. According to Pew Research, millennials surpassed Baby Boomers as the largest living generation in the U.S. And guess what? Most of them don't own credit cards.
"In 2015, 20% of people between the ages of 20 and 24 were credit invisible."
You read that right: Bankrate noted 63 percent of people aged 18 to 29 don't own credit cards. This suggests millennials have either thin-file or no-file credit reports. As a business owner, you've got to wonder whether it's even worth it to use traditional consumer credit reports to assess this generation's creditworthiness. With the way things are going, it may not be.
Many millennials are credit invisible
In 2015, the Consumer Financial Protection Bureau assessed which age groups were credit invisible, didn't have recent credit data or lacked enough information for The Big Three credit bureaus (Equifax, Experian and TransUnion) to score them. Surprising to some, more than 20 percent of people between the ages of 20 and 24 were credit invisible. In addition, 3.8 percent didn't have enough recent data to establish accurate credit reports, while another 11.5 percent didn't generate enough information through lending and credit activities.
That adds up to more than 34 percent of 20- to 24-year-olds that either have no credit scores at all, or have inaccurate reports. While the situation's much better among people between the ages of 25 and 34, it's enough to convince some that traditional credit scores aren't going to get the job done. There are too many risks involved with using them, especially when referencing them to assess a group of people who are just starting out, financially speaking, and are therefore more likely to present risk.
In light of all this, how can you assess millennials' creditworthiness?
Look toward alternative credit scores
You're not the only one who's thought about the credit information conundrum. Some financial technology companies are even using social media profiles to rank people's ability to repay loans, but that's a little too far-fetched. It'll be years before that approach becomes reliable.
Lenders do have an option to use alternative credit reports. One company, PRBC MainStreet, has been offering these solutions for more than 10 years, continuously testing and refining its data collection and analysis practices to deliver accurate, reliable reports on consumers' creditworthiness.
How do alternative credit reports work? Say a millennial comes into your business and wants to obtain a loan. He doesn't have a traditional credit report, but he tells you he's been living on his own for a few years, paying rent and utilities along the way. You tell him about the PRBC report, for which he can sign up for free. After he does this, you'll receive a detailed report that shows how financially responsible he is. The report also comes with a score that looks much like a traditional credit score, so it's easy to understand.
If you want to learn more about how you can add alternative credit reports as a part of your lending practices, get in touch with us.