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The Truth About Millennials and Subprime Lending

The Truth About Millennials and Subprime Lending
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Sunday, 01 April 2018 12:45 PM Current | Bio | Archive

The average credit score for Americans has increased from 673 to 675 since 2017, according to an Experian study but with no credit score, millennials face an uphill battle in establishing a borrowing history.

“Within the past several years, credit scoring has also been used as a tool to determine whether applicants are suitable for employment,” said John Heath, directing attorney with Lexington Law, a firm that specializes in improving the credit report scores of their clients nationwide. “The credit score is a grading system that represents the health of your financial life.”

Not having established credit or having a poor credit score makes it challenging for consumers to borrow the money they need from traditional lending sources or credit cards.

Some 43% of borrowers aged 18 to 36 have a credit score of 600 or below on the 300-to-850 VantageScore scale, according to TransUnion. If a credit score hovers below 650, the individual will most likely be considered a risk.

“When an unexpected financial emergency occurs, such as a car breaking down or an illness preventing them from working, they don't have a safety net to fall back on,” said Jason Springer, chief marketing officer of LoanMart.

That explains why 43% of millennials use subprime credit compared to only 30% of all credit-active adults.

“Millennials tend to take advantage of fast lending and then use that momentary monetary relief to create a better financial situation for themselves,” Springer told Newsmax Finance.

The Subprime market is often defined as including pay day loans, credit cards, student loans and auto loans or title loans.

“Payday loans are unsecured loans. lending low dollar amounts,” said Springer. “Car title loans are secured loans, which lend a much larger amount of money. Both are non-traditional, offering a borrower what many traditional lenders won’t.”

Avoiding the trap that underlies subprime borrowing requires paying attention and choosing a subprime service provider wisely.

For example, Loan Mart’s financing is amortized and requires no pre-payment fee.

“We are flexible and can structure loans for a term of up to 3 years,” Springer said. “The customer has the power to pay off without penalty as early as they want.”

And paying off a subprime loan as soon as possible is key.

“Carrying high balances on your credit card or revolving accounts will adversely affect your credit score,” Heath told Newsmax Finance. “High balances can be construed to show that you are not managing your finances in a wise manner.”

Living according to a spending plan and remaining aware of discretionary spending limits by automating investing and saving activity is one way that millennials can stay ahead of the debt game.

“It’s important for young people just starting out to mind their credit well.” said Justin Harvey, a CFP and founder of Quantifi Planning, LLC in Pennsylvania. “Make payments when they are due and don’t let discretionary spending get out of control.”
 

Juliette Fairley is an author, lecturer and TV host based in New York.

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JulietteFairley
Living according to a spending plan and remaining aware of discretionary spending limits by automating investing and saving activity is one way that millennials can stay ahead of the debt game.
truth, millennials, subprime, lending
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2018-45-01
Sunday, 01 April 2018 12:45 PM
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