Young people face growing trust problems
Fair Isaac Corporation has created the most commonly used credit scoring model in the country. His three-digit FICO score, which ranges from a low of 300 to a high of 850, is a weighted composite of a borrower’s credit risk, or the likelihood of not being able to repay the money they borrow. The scoring model includes five types of data. Payment history is the most important, accounting for more than a third of your score, followed by outstanding amounts, length of credit history, new credit, and a combination of different types of credit.
Although these conditions are not age-specific, Gen Z is at a distinct disadvantage, as 15% of credit scores are determined by the length of a borrower’s credit history. According to credit reporting agency TransUnion, the average credit score for adults under 25 is 679, while the average credit score for Americans overall is 714. On a scale of 300 to 850, 679 is high enough to qualify for many types of loans, including conventional mortgages, but not high enough to get the best interest rate.
Black and Latino youth face even greater challenges. The Urban Institute, a think tank, found that the average credit score for 21- to 24-year-olds living in majority-black communities is 597, which significantly limits borrowing opportunities and improves their scores. I discovered that.
Margaret Libby, founder and CEO of MyPass, a nonprofit that promotes economic mobility, recommends some common credit-building recommendations for young people, such as being added as an authorized user on a parent’s credit card. The department said it is difficult to use as an authorized user of a parent’s credit card. Not just people of color, but people in low-income neighborhoods as well. “This is an equity issue, a real equity issue in this space,” she said.
For young people with little credit history, other attributes of a credit score become very important. “This is one of those categories where the best thing young consumers can do in this category is build credit and build a credit history,” said Ethan Dornhelm, vice president of scores and predictive analytics at FICO. said.