Credit Report: Know Why Young Millennnials Should Take This Seriously

Increasing competition among lenders and greater technological headway are the two critical factors that have contributed to a problem of plenty when it comes to credit. Millennials, buoyed by easier access to fast credit, now find it simpler to borrow than ever before.However, in the process, it is their credit profiles that take a beating, something that adversely impacts their eligibility to take out a loan in the future.

Courtesy of being more tech-savvy as opposed to their older peers, young millennials today comprise the most significant share of digital borrowers. An increasing number of millennials are making their way into the credit ecosystem, with as much as 55% of young borrowers (age ranging between 22-25 years) being first-time borrowers.That being said, more available credit, if not managed well, can ruin one’s credit report.

Basis the data on past repayments -- made by customers -- that lenders furnish, the credit bureaus prepare what is known as a credit report. This serves as the summary of all repayments made and every associated detail, including repayment behaviour, credit enquiries, outstanding credit (if any), misleading credit entries, and credit utilisation rate.Simply put, one’s credit report is of paramount importance, considering lenders take that into account before making any lending-related decision. A credit score, one that is calculated after factoring in debt and past repayment records, is assigned to the borrower. Higher the credit score, greater is the possibility of taking out a loan at a competitive rate of interest.

No matter how easy borrowing has become, repayment remains the litmus test. Easier access to credit has led many to borrow beyond their means; something that could jeopardise credit report should they falter on timely repayments. Remember that a multitude of factors – fiscal discipline, the type and size of loans, credit utilisation, and frequent loan-related enquiries – usually affect credit score.

Experts consider young adults, between 25-35 years of age, to be particularly susceptible to defaulting on repayments. On deep diving, they unequivocally adjudge first-time borrowers to constitute the highest risk category when it comes to defaulting and committing mistakes. Several studies point at young millennials’ (22-25 years) dereliction of duty for failing to make prompt repayments.While this may not affect the industry as much, considering ticket size and total exposure of young millennials is relatively low; serial defaults will negatively impact their ability to take out any subsequent loan.Therefore, you must be careful, particularly should you be borrowing for the first time.

Yes, they are. However, it is the secured loan defaults that may ruin your credit report more vis-à-vis non-payment of unsecured loans. Therefore, make sure you are cautious and not borrowing beyond your means if you are planning to take out a home loan, car loan, or credit against financial securities.

The first step to clean credit history is knowing the repercussions of fiscal indiscipline and reckless borrowing:

• Take out only what you know you’d be able to repay on time
• It is recommended that you issue standing instructions to your lender to auto-debit payment
• Get into the habit of keeping a regular tab on your credit report for it will help you stay on top of any credit entry that’s being made

In conclusion If you are a young millennial, take your credit report seriously. Track credit history as it will help you accurately assess your fiscal health and take corrective measures should you notice any deviation. Also, you’d know if any institution has had unwarranted access to the report.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.