credit risk management

As a generation, the youth prefers every aspect of life to be in tandem with their ambitions, instead of being an obstacle. Very often, bad credit scores can be just that, an obstacle and a tedious task to managing good credit scores.

Why Should Millennials Care About Credit Scores?

Credit and credit scores establish the idea of ‘trust’ in lending/borrowing through numbers and algorithms. A credit score, ranging between 300 to 900, assesses the eligibility to repay the loan the millennial has taken. The higher the score, the easier it is for a millennial to get a loan, because he/ she gives a better image to potential lenders.

Let’s assume that you applied for an INR 25,000 loan from a fintech and were rejected. It means that the fintech company does not trust you to repay the loan. The reason behind your rejection could be your low credit score. Factors like missing out on paying an EMI, delaying card bill payments and similar, can lead to a poor credit score which further lessens the chances of a loan approval.

Are Millennials Aware Of Their Credit Scores?

The current crop of young professionals, surprisingly, seem very well aware of their credit scores. Millennials and Gen-Y seem to have a certain recklessness about borrowing and spending. Their attitudes towards money and investing seem different as compared to their seniors, most often because these very seniors have protected the younger generation with a safety net.

Digital media also largely influences their spending habits, making borrowing in flexible amounts to fund their lifestyle and needs, seem like a go-to option. While credit is easily accessible and convenient, consumerism and debt traps often go hand-in-hand.

Over the years, the younger generation has been severely impacted economically every time there has been a crisis, and 2020 is one such example. However, seeing them aware of their scores gives us hope, encouraging us to educate them more on managing scores on the digital lending platform.

Reasons For A Low Credit Score

Delayed payments: Being late on due credit card payments or loans can cause your credit score to dip. Delays of more than 90 days can greatly lower your score and any chance of getting future loans, digital loan or otherwise may be hampered.

Increasing utilisation of credit lines: Utilisation measures how much of credit limit you use on your card lines. A consistently high utilisation (for example, 90% and more) of your assigned credit limit can hurt your credit score.

Extensive credit line application: Financial institutions look down upon multiple applications for loans/credit products by consumers, especially when done within short intervals. It suggests that the person is a high-risk borrower during credit risk assessment.

Rising number of open and/or closed credit lines: A large amount of unpaid debt can affect your credit score, especially if there are unsecured loans and outstanding balances.

Determining credit history length: If you maintain a long, healthy history with financial institutions, they trust you more, which is reflected in your score.

At the end of the day, take only as much credit as you need and make the repayments on time.