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Right now, about 67 million people comprise what is known as the Millennial generation. That represents about one-quarter of the country’s purchasing power and is a lot of clout for one group.
But, as we have learned things are quite different with this generation. They don’t do things like prior generations.
For one thing, they don’t use credit and credit cards as others have and that has an adverse effect on their credit scores. It’s not that they necessarily have a poor credit profile; it’s that they use credit quite differently.
Did you know that only a little more than one-third of Millennials hold a private bank card? Most would rather use their debit cards.
In fact, debit card transactions grew from 8 billion in 2000 to more than 60 billion in 2015. Not all were from Millennials but a large chunk came from them.
As credit scores play such an important role in mortgage qualification, the lower credit scores are hurting those Millennials now looking to finally enter the home market.
Today’s average credit score for mortgage loans is running about…
741, a 55 point differential from the 686 average score in 2001.
With student loan debt and a lack of traditional credit, many Millennials are being penalized for their prudent use of credit and for waiting to buy a home until they believe they are ready.
Things are further complicated by the new tighter underwriting standards, making it more difficult for them to get a loan.
The drive today is to increase homeownership. Millennials can play a very important role in doing so if they can get financing.
Lenders have the programs and the money, all that needs to be done is for all parties to get together to make it work.
New credit scoring models aren’t going to get it done because many of this generation do not rent, nor do they pay utility bills.
They’re smart, they live with parents to minimize expenses and save money. If not, they live with others and share these expenses. That makes it tough to track payment histories.
In the end, it’s up to lenders and the secondary mortgage market to understand the differences in this generation and adjust lending policies and processes accordingly.
Not having an extensive history of using credit to survive is not a bad thing. Maybe, they’ll make their mortgage payments on time since that will be their major expense.
If you want additional lending opportunities, start looking to Millennials. They’re smart and savvy, and although they may be a little frugal, they are many.
Do your homework to find the ways to communicate, satisfy their needs, and get their loans approved. You may just find a whole new line of business opportunities.
Of course, while doing so, don’t forget your loan quality and compliance.
