| Millennials are finally buying homes and applying for mortgages, with 23 percent of all newly originated mortgage dollars attributed to that generation. But millions more could be locked out of the market due to their credit scores.
A recent study found that though 86 percent of Millennials believe that buying a house is a good financial investment, more than half don’t have a credit score high enough to secure a mortgage.
Experian also conducted a study looking at loan trends, credit scores, bank card behaviors and mortgage trends of 60 million Millennials consumers, the largest credit population in the U.S. The study concluded that 61 percent have a near prime or worse credit score and would need to significantly improve the quality of their credit in order to qualify for a mortgage.
The average VantageScore for U.S. consumers is 677, and generally goes up as people age. However, the study found that Millennials have an average near prime score of 652 between ages 22 and 28, and a prime score of 665 between the ages of 29 and 35.
Millennials also have higher delinquency rates than the national average, where the delinquency rates on personal loans are at 1.32 percent. Millennials’ delinquency rates from 2017 are 2.08 percent for younger Millennials, and 1.51 percent for older Millennials.
But how can Millennials, who have shown increasing interest in homeownership, change their credit trajectory?
There are plenty of websites online that Millennials can access for credit repair, management and information, like TD Bank’s Learning Center or FICO’s Score Planner, as Washington Post columnist Kenneth Harney recently reported.
“Building credit may take some time, but it isn’t necessarily a difficult process. Opening a credit card and using it responsibly is still the best way to build your score,” Jill Gonzalez, an analyst for consumer resource website WalletHub, told Banker & Tradesman. “And that simply means paying your bill on time, or even just locking it in a drawer if you’re really against using it. Your credit will still benefit by having an open line of credit that is in good standing.”
Paying down debts, reducing credit utilization and striving to make monthly payments on time are also helpful. Gonzalez added that accounts should be kept open, even if they are not in use. “The length of your credit history also plays a role in improving your score,” she said.
“The one thing Millennials should keep in mind is to be patient. Improving credit, as well as building it from scratch, can take anywhere from six to 18 months,” she said.
Making those changes before applying for the mortgage could save Millennials thousands, Harney said. According to a LendingTree study, a FICO score between 580 and 669 to a 740 score would save the borrower more than $29,000 over the life of a $234,000 loan.
The most common, and most simple, solution every banker or lender will give to a Millennial is to become more financially literate through seminars, workshops and research. Only 8 percent of Millennials in a study from George Washington University said they were comfortable saying they had a high level of knowledge about personal finance.
There are countless resources available to help Millennials get on track for a financially successful home purchase; all they have to do is take advantage of those resources and get back on track.
