Focus: New-To-Credit Millennials, Credit-Rating Systems & Borrowing Credit

By Sanesh Mathew | August 8, 2019

Owing much to the changes in banking trends and the emergence of fintech companies, millennials across India have become open to the idea of borrowing credit. But there’s a major issue that quietly cripples this trend.

Focus: New-To-Credit Millennials, Credit Rating Systems & Borrowing Credit

Access to credit products such as Credit Cards and loans may be rather easy today, but it wasn’t the case till a few years ago. As millennials, we grew up in a system that regarded such credit products as ‘financial stressors’ and those opting for them were often looked upon as financially-screwed individuals. Well, thankfully, we’ve moved on from this ancient system and aren’t we glad or what!

Owing much to the changes in banking trends and the emergence of fintech companies, today, millennials across India have become open to the idea of borrowing credit for their various spending needs – from something as minimal as buying a smartphone to big-ticket purchases such as a house. It can safely be said that Credit Cards and loans are slowly becoming part and parcel of a millennial’s spending culture.

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But…

That being said, there’s a major issue that quietly cripples this trend. Like we mentioned earlier, millennials in India were brought up within a system that frowned upon credit products. And, of course, this bunch stayed away from Credit Cards and loans in their early adult lives. Therefore, they do not have any credit history, based on which lenders – banks and non-banking financial companies (NBFCs) – can consider their lending requirements. In short, a fat chunk of India’s millennials is new to credit.

New to credit?

New-to-credit customers or first-time borrowers is a term used to refer to those people who do not have any credit history. They do not hold any Credit Cards or haven’t availed any loans till date. Hence, there is little-to-no data to gauge their financial habits and behaviour. And, therefore, credit lenders are hesitant to offer their credit products to them as they find it risky.

The whole new-to-credit scenario represents the chicken-egg conundrum – people who fall under this segment are unable to avail credit products since they do not have a Credit Score, and, at the same time, they do not have a Credit Score since they are denied credit products. But, thanks to technology, access to credit products have become easier, especially with new credit lending companies emerging in the market.

These credit lending companies focus on changing the credit scoring market by introducing new credit rating mechanisms that specially cater to the new-to-credit millennials’ segment.

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What’s the current scenario like?

The market is slowly getting flooded with these new-gen credit lending companies that offer services such as buy-now-pay-later and loans for first-time borrowers. With a sole focus on millennials since they are a large chunk of the population, these lending start-ups also work with alternate data such as social media data, mobile payments, SMSes, etc. to tackle the issue of credit rating for new-to-credit customers, thereby making them worthy of availing loans.

Building awareness among millennials

Certain studies have revealed that a major portion of today’s millennials in India aren’t very clear about even basic financial concepts. Although the change in the general perception of credit products have made them more open towards borrowing credit, there is a need to educate these customers about the various fintech solutions. The need of the hour is a deeper awareness of the whole credit scoring mechanism. It is important for India’s millennials to be aware about their credit health, in order for them to take confident steps towards borrowing credit as well as achieving some of their major financial goals such as buying a house or a car in the future.

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New-age fintech lending companies have, of course, taken an alternate route from the traditional by developing different credit evaluation systems to determine an individual’s creditworthiness, thereby enabling them to offer hassle-free loans instantly to new borrowers. On the other side, traditional fintech companies who still work around the good ol’ Credit Score system have started offering free Credit Score checks, aiming at creating greater awareness around the product. Ultimately, fintech companies today aim to increase credit penetration among millennials by either building new products or creating awareness.

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Sanesh Mathew

About Sanesh Mathew

A talkative sleepyhead, Sanesh, enjoys watching horror movies, listening to music, reading all things related to personal finance and wandering aimlessly (walking meditation, he calls it!). He refers to himself as a 'simple human being with a rather chaotic mind'.

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