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The More The Merrier

How having less debt ends up hurting young people

You should be cautious with your money, up to a certain point. According to a recent study from VantageScore, young people are less likely to take on new debt — even as their finances improve — than older people. That sounds good. However, the issue is that many lenders still perceive cautious borrowers as risky, and that’s not good at all.

The thinking from lenders goes like this: Usually, as a person increases their income and savings they also need to add debt, from things like a car loan or new credit cards. These people add more debt because they know — or at least think they know — that they can handle the debt effectively. Therefore lenders consider people with more debt less risky, so lenders offer them the best interest rates. VantageScore’s report might change that. The study found that Millennials with fewer credit accounts (two or less) have higher or equal levels of income and assets than Millennials with more credit accounts (three or more). One reason Millennials are flipping this script is that they tend to be more focused on paying down one debt before taking on another debt.

While paying down debt before adding more seems like a solid move, some lenders don’t see it that way. One fix? Card companies could get creative and give Millennials the chance they deserve. On the Millennial’s side of things, they should recognize that lenders see more debt as a good thing, and take on debt responsibly. As odd as it might seem, adding a card or an affordable car loan can be a good thing.

Chris O'Shea

Chris O'Shea