Study: Millennials without mortgages often coping with low credit scores

Young buyers face a number of challenges when purchasing a home, ranging from persistent student loans to high prices on available properties. A new analysis by the credit bureau Experian suggests that low credit scores are also inhibiting for many millennials who don't have mortgages.

Experian looked at the credit scores, personal loans, bank card behaviors, and mortgage trends for 60 million millennials. The study concluded that millennials typically face higher delinquency rates and that only 39 percent of those without a mortgage had a credit score considered prime or higher.

Millennials have been entering the housing market in increasing numbers. While Experian found that only 15 percent of millennials in the analysis had a mortgage, tis group accounted for 23 percent of the balance of home loans originated in the last quarter of 2017.

However, 61 percent of millennials had credit scores that were considered "near prime" or worse. A prime score is 661 or higher.

Lenders use credit scores to determine a borrower's risk and set the interest rate on a mortgage. In many cases, a lender may be reluctant to approve a conventional mortgage for a borrower whose credit score falls before 640 or 620.

Younger millennials, or those between the ages of 22 and 28, had an average credit score of 652. Older millennials, between the ages of 29 and 35, had an average credit score of 665. The average score for American consumers as a whole was 677.

Seventy-seven percent of millennials with a mortgage had a prime credit score, with an average score of 716 and 16 trades on file. These millennials had an average age of 31 and income of $64,000. The typical younger millennial with a mortgage had a balance of $167,000, while the average balance among older millennials with a mortgage was $210,000.

"This data presents good news for younger, thin file millennials interested in buying a home," said Michele Raneri, vice president of analytics and business development at Experian. "We're seeing that small changes in financial behaviors such as building a history of on-time payments and improved credit practices can help lenders shift from viewing millennials as high-risk to low-risk relatively quickly. Knowing where you stand from a credit perspective is critical to improving or maintaining your financial well-being."

By contrast, millennials without a mortgage had an average credit score of 632 and eight trades on file. Millennials in this group had an average age of 28 and an average income of $33,000 a year.

Older generations were more likely to take out personal loans, with millennials accounting for just 21 percent of new personal loan originations in the past four years. However, these balances were up 40 percent from 2011. Older millennials had an average per loan balance of $11,700, compared to $7,300 among younger millennials.

Millennials accounted for 20 percent of new bank card dollars in the fourth quarter of 2017. Younger millennials typically carried a balance of $3,000 on bank cards, while older millennials carried an average balance of $7,500.

Delinquencies were more common among younger borrowers than older ones. While the national delinquency rate on personal loans stood at 1.32 percent at the end of 2017, it was 2.08 percent among younger millennials and 1.51 percent among older millennials. The national bank card delinquency rate was 1.54 percent, while the rate was 2.33 percent among younger millennials and 2.18 percent among older millennials.

"Often, young people start their credit journey with a couple of mistakes first, but in the end these mistakes create opportunities to learn how to use and build credit responsibly," said Rod Griffin, director of consumer education and awareness at Experian. "We believe everyone deserves access to quality credit and homeownership. This study presents clear areas of opportunity for millennials as they age and prepare to enter the mortgage market."

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