Credit risk or hot prospect? Millennials and back-to-school credit

by Carmel Maher

Carmel Maher

In 2015, ID Analytics released a report Millennials: High Risk or Untapped Opportunity which debunked the myth that millennials are less interested in traditional credit and financial services than previous generations.  The findings of the study indicated that millennials represent the greatest percentage of credit applications but are being denied credit at a higher rate than Gen Xers and baby boomers.  Somewhat surprisingly, millennials also performed better in repayment with a lower reported delinquency rate than other generations. Despite millennials showing strong credit performance, they are often considered to be a high credit risk.

As the last of this generation heads off to college, does this trend still hold true? Are lenders’ credit risk policies overlooking what could be valuable, lifetime customers?

Recent research by ID:A Labs reveals an increase in the percent of 18-22 year-olds applying for credit and retail cards in July, August and September (see Figure 1.). Based on this analysis, the back-to-school season would appear to be an opportune time for lenders to target these consumers who are actively seeking credit products.

Millennial credit application volume

Figure 1.

Our data shows that while we continue to see millennials applying for credit products at high rates, they still fall below the average acceptance rates for retail card products (see Figure 2.). Why is the trend of lower acceptance rates perpetuating? Millennials are stuck in a Catch-22 of “you need credit to get credit” that hinders many young people from gaining access to credit today—even though they have been shown to outperform other age groups in the same credit risk bands. Traditional credit scores can often hinder millennials’ ability to gain access to these services due to an inaccurate reflection of credit risk.

Millennial credit acceptance rates

Figure 2.

In today’s competitive lending landscape, missing out on consumers who are actively seeking your products and services could be detrimental to business growth. Our research has shown that once declined, few millennials will apply for credit products or services within the year, and only one-in-ten will reapply with the same lender. Traditional credit scores are often the deciding factor in credit decisions, and over one-third of all millennial consumers cannot be scored by traditional credit tools. By capturing fundamental credit behaviors missing from most traditional credit scores, alternative credit data can provide an expanded view of applicant credit risk for young adults, recent immigrants and other new entrants.

There is ample evidence to support that individuals without a robust credit history can represent an untapped opportunity for lenders. To learn more about millennial credit behavior, read our research brief Debunking Millennial Myths.  For more information on how alternative credit data can help you say “yes” to more millennials during the back-to-school-rush, contact us.


Carmel Maher is the Product Marketing Manager for ID Analytics