(Bloomberg Business) — To lenders, millennials are like ugly-looking fruit: They may appear suspect, but on the inside they're just as good a bet as the next apple. That's roughly the takeaway of a report published last week by credit rating company TransUnion, which suggests young people with student debt are not as risky an investment as they may seem.
The company reviewed credit profiles for 6 million people and found that having student loans did not prevent them from taking out other kinds of consumer debt in the long run.
"Younger consumers are doing a really good job at managing other types of credit," says Charlie Wise, a vice president in TransUnion's innovative solutions group. "This is a surprisingly credit active, credit hungry group that seems to perform well on those loans."
Part of the reason TransUnion would like banks to believe that they are underestimating young consumers is that the company is selling risk assessment products that will help identify worthy borrowers based on more than just an impassive credit score.
"There are a lot of consumers in their twenties that are new enough to credit but haven't established it, and therefore they are on the outside looking in when it comes to consumer loans," Wise says. "It's missed opportunities. Just because you don't have a credit score doesn't mean you aren't a good risk." For banks and other creditors to buy into the idea that they're missing out on something, they need first to believe that there is a something to miss out on.
Still, the data back up that logic. The study looked at people who entered student debt repayment – which normally coincides with leaving college – in 2005, 2009, and 2012 and compared them with others their age who did not have college loans. People with student debt were less likely to have auto loans right after leaving school than those without college loans, but the student debtors caught up with their peers within a couple years for each of the three graduation years.
