Here’s why a majority of millennials are rejected for loans, credit cards

Millennials Most Rejected for Financial Products

Here’s why a majority of millennials are rejected for loans, credit cards

Some 58 percent of Millennials (ages 23-38) have been denied at least one financial product due to their credit score, according to a recent report.

That compares with 53 percent of Gen Xers (ages 39-54) and 27 percent of Baby Boomers (ages 55-73). Prospective borrowers are most often rejected for credit cards (36 percent of millennials/28 percent of all U.S.

adults), followed by auto loans (18 percent of millennials/13 percent of all U.S. adults).

Why it’s happening

I attribute millennials’ difficulty obtaining credit to three main reasons:

Student loan debt: Millennials’ struggles with student loan debt have been well documented. Collectively, Americans owe $1.56 trillion in student loans, which is about $500 billion more than they owe on credit cards, according to the Federal Reserve.

Hefty student loan bills raise one’s debt-to-income ratio, which makes it harder to qualify for new loans and lines of credit. Millennials are hit with a double whammy because they’re earning early-career salaries.

A lot of debt and a lower income is a tough combination.

Aversion to debt: Because of their student loans and because they’re scarred from coming of age around the time of the Great Recession, many millennials are scared to take on additional debt. Older millennials may also have been affected by the dot-com bust and the related recession in 2001.

These debt fears are well-intentioned, but the problem is that you need to establish a solid track record to earn a good credit score. You can’t just wake up one day after using your debit card exclusively and expect to qualify for a mortgage or a car loan with a low interest rate.

You need to put in the work of building credit and demonstrating positive payment habits.

Unintended consequences of the CARD Act: Among other consumer protections, the CARD Act (which went into effect in 2010) pushed credit card marketers off college campuses and set 21 as the minimum age for obtaining a credit card (with some exceptions).

This was meant to prevent the situation that so many Gen Xers fell into: An attractive marketing rep got them to sign up for a credit card on the quad in exchange for a T-shirt and then they racked up a ton of debt.

Avoiding that is a good thing, however, many people today are having trouble getting credit cards at age 21, 22 … even 25. As I mentioned above, it often takes credit to get credit, just it’s much easier to get a job when you have relevant work experience.

But how do you get that experience if no one’s willing to give it to you?

Why it’s important

Let me pause for a second to underscore why all of this is so important. Even if you’re afraid of debt, it’s impractical to stay off the credit grid for long. You’ll have a very difficult time renting an apartment, for instance, if your credit is bad or nonexistent.

Cell phone providers and other utility companies often check credit scores when you open service plans and could require significant deposits if the results are unfavorable. Many employers even check prospective employees’ credit reports before extending job offers.

And then, of course, there’s the fact that you’ll probably want a credit card, auto loan and mortgage someday.

So what can you do about it?

Authorized user status: Ask your parents or someone else that you trust to add you to one of their credit card accounts as an authorized user. As long as they use the account responsibly (paying on time, keeping their debts low, etc.), you’ll benefit from your association with this account.

An added bonus is if you use this authorized user status as a learning experience. Paying with a credit card is different from paying with a debit card or cash.

Get comfortable with the distinction and take advantage of training wheels such as American Express allowing primary accountholders to set individual credit limits for authorized users.

Sign up for a credit card that’s easy to get: I recommend Apple Card and the Petal Card for people who are building or rebuilding their credit. Both accept a wide range of credit profiles, they don’t charge any fees and they provide helpful financial management tools. Secured cards are another good option.

Cardholders put down a deposit (often a couple hundred dollars) that becomes their credit line, so there’s little credit risk. You need to come up with additional funds to pay your card off each month.

If you use a secured card responsibly for 6-12 months, your credit score should improve significantly, and you’ll probably be able to upgrade to a traditional/unsecured card. Many banks and even offer secured cards.

Opt for a credit builder loan: Many credit unions extend these loans, which are really a form of forced savings. Expect to aside payments for 6-24 months. At the end of the term, you’ll get to keep almost all of the money (there are usually minimal fees). As long as these payments are reported to the credit bureaus, you’ll come away with a higher credit score as well.

In summary, even though many millennials are having trouble getting established with credit, there are concrete steps they can take that will bring tangible progress within a few months.



Many Americans Denied Credit in 2020 |

Here’s why a majority of millennials are rejected for loans, credit cards

Have you recently gotten turned down for a credit card, loan or apartment rental? If so, you’re one of many Americans who can add credit denial to the long list of hardships this year has brought.

A new poll from Bankrate shows 21 percent of U.S. consumers have had an application for credit rejected in the middle of the coronavirus pandemic because a credit card company, lender or landlord deemed their credit score too low. (See survey methodology.)

A recent rejection may simply be a sign of the times. Lending standards have tightened in 2020 due to the pandemic and related economic uncertainty, says industry analyst Ted Rossman. The crisis has hit the credit card industry especially hard since employment and economic trends strongly impact unsecured debt, he says.

Millennials (ages 24 to 39) have been the generation hit hardest by the current credit climate, with 32 percent rejected for credit this year, the survey found.

One 27-year-old Denver area entrepreneur, Hannah May, says she got turned down by a big bank for an auto loan in April when she tried to buy the Subaru she was leasing.  She also got denied a business credit card.

But she really needed a car to drive clients around and make other work trips. So she asked her dad to co-sign the loan and then got approved. She says both credit denials made an already rough year even more stressful.

“Whenever you have to reach out to a parent for help, it’s a shot to your pride,” she says.

Who can’t get credit right now?

Credit card applications have brought the most rejections in 2020 compared with other types of credit. Of the 21 percent of consumers who reported being denied credit so far this year:

  • 13 percent have gotten rejected for a credit card
  • 5 percent have been turned down for a car loan
  • 3 percent have gotten a “no” on a mortgage application
  • 3 percent have had the door closed on them for a rental
  • And 3 percent have been denied insurance coverage

Creditors were especially ly to issue rejections in March, April and May, when there was a high level of uncertainty about how the pandemic would affect debt repayment, says Howard Dvorkin, CPA and chairman of

“Traditional creditors, credit card companies and subprime lenders were scared their wits because they didn’t know if they were going to ever see their money ever again,” Dvorkin says.

Who’s gotten turned down? While 32 percent of millennials have been denied a financial product so far this year, only 22 percent of Gen Xers (ages 40 to 55) and just 11 percent of Baby Boomers (ages 56 to 74) have experienced this type of rejection.

Consumers with lower incomes were more ly to get rejected than higher-earning consumers.

In fact, almost 1 in 3 (31 percent) of those with annual household incomes of less than $40,000 have gotten rejected for at least one financial product this year.

In contrast, less than 1 in 5 (19 percent) of those with incomes between $40,000 and $80,000 and just 14 percent of those who make over $80,000 have gotten a no.

The pandemic has made lenders leerier of risk. For example, 0 percent APR balance transfer credit card offers are becoming scarce. And some rewards card issuers are wooing higher-income applicants by offering big sign-up bonuses for high spenders.

For example, the Capital One Venture Rewards Credit Card is offering a huge 60,000 miles once you spend $3,000 on purchases within 3 months from account opening, equal to $600 in travel.

“It will eventually bounce back, but for now, it’s a risk-off environment that has card issuers looking for the most creditworthy applicants and many consumers in debt payoff mode,” Rossman says.

Does rejection hurt financially? It depends

Some consumers view getting rejected for credit as a big hit to their finances, while others have a wallet-half-full outlook.

Overall, almost half (47 percent) of those who got rejected for a financial product in 2020 said the experience negatively affected their finances. But about one in five (21 percent) said the rejection had a positive impact on their money situation.

The tendency to view a rejection negatively was linked to age and gender, the poll found. In fact, women (53 percent) were more ly than men (41 percent) to view a rejection as a detrimental financial event in their lives.

And more than half (52 percent) of rejected boomers reported unwelcome financial fallout from getting denied credit, compared with half of Gen Xers and less than half (46 percent) of rejected millennials.

The opposite was true of the positive effects. The poll shows 27 percent of rejected millennials, 15 percent of rejected Gen Xers and just 7 percent of rejected boomers reported that the denial had a good effect on their finances.

It’s possible that these consumers ended up happy to not have extra debt to pay down during a pandemic and recession. And there are several other reasons why an applicant might see a silver lining to getting turned down for credit, says Bruce McClary, vice president of communications for the National Foundation for Credit Counseling. For example:

  • The rejection may act as a wake-up call. A rejection can inspire a person who’s in financial trouble to balance their budget, get their debt under control and climb a financial mess, McClary says. “If someone is already drowning in debt, the last thing they need to do is take on more debt,” he says.
  • They may end up finding a better deal. A consumer who applied for credit on the fly without fully weighing all their options may end up finding a different financial product with better terms, McClary says.

On the flip side, a rejection could cause an applicant to lose out on a house for sale in a competitive market or miss out on a good deal. And it could even push some consumers—if you need a car to get to work, for example—into the dicey world of subprime borrowing.

“A subprime loan could be the tipping point that leads to trouble,” McClary says.

5 ways to boost your credit and increase your odds

Want to increase your chances of getting credit or take steps after rejection to increase your odds for next time? One upside to getting turned down for credit: it can inspire you to make positive changes. In fact, the poll found almost 3 in 4 (73 percent) consumers rejected for a financial product this year have taken steps to make their credit better. Here are some tips:

1. Know the score

You can use to get a free yearly report from each major credit bureau, but the report doesn’t include a credit score. Check out this list of lenders that offer you a look at your FICO score for free.

Once you have your score, check your credit score range.

A FICO score of 740 to 799 is considered very good while 800 to 850 is exceptional “Go in with your eyes wide-open knowing exactly what the lender is going to see on your credit report,” McClary says.

2. Correct any errors

Did you find errors on your credit report that may be dragging your credit down? The U.S. Federal Trade Commission offers a guide to disputing credit reporting errors and a sample dispute letter you can send to the major credit bureaus. “There may be items having an adverse impact on your score through no fault of your own,” McClary says.

3. Pay down your debts

Amounts owed make up 30 percent of your FICO score, so reducing your debt can have a big impact. How much can paying down your balances help you? You want to keep your credit utilization ratio, the percentage of available credit you’re using, well below 30 percent. A higher number can really hurt your score.

4. Find the right card for you

Use a free tool  CardMatch to match you to a card that fits your credit profile in less than a minute. Finding a suitable credit card your credit profile may help you avoid rejection.

With CardMatch, you answer a few questions and OK a “soft credit check” that won’t cause any dings to your credit score.

Then you get a list of preapproved and ly card offers, taking a lot of the guesswork applying for a card.

5. Contact the creditor

If you’re not sure what kind of credit is required, ask the landlord or lender. “Go straight to the source,” McClary says.

It also helps to know if you have factors that would be red flags for creditors, such as spotty employment history or lots of recent applications that make you look you’re “aggressively” seeking credit, Dvorkin says.

If your chances are slim, you may need to look at other options, such as tapping a savings account, getting a co-signer May did for her car or asking for a loan from a family member.

If you get turned down, take a close look at the rejection letter to figure out what you can do to improve your chances next time. “They’re required to tell you what factors led to their decision,” McClary says. “If it does involve your credit, step back, take a deep breath and go back to square one.”

Survey methodology

Bankrate commissioned YouGov Plc to conduct the poll. All figures, unless otherwise stated, are from YouGov. Total sample size was 3,780 adults. Fieldwork was undertaken between Oct. 21-26, 2020. The survey was carried out online.


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