Gen Z Displays Strong Appetite for Credit; Millennials Refinance Less (For Now)

TransUnion, Chicago, said Generation Z consumers—those born in or after 1995—are actively seeking credit despite many of them growing up during severe economic recessions in their respective global markets.

A separate report from Ellie Mae, Pleasanton, Calif., said a rise in interest rates in December led to a drop in Millennial refinancings.

The TransUnion study explored credit activity of Generation Z consumers (also known as Gen Z) in established consumer credit markets including the United States, Canada and Hong Kong, as well as emerging credit markets including Colombia, India and South Africa. The study explored the depersonalized credit data of Gen Z consumers to understand their credit behaviors by country, specifically observing originations, account preferences and balances. It found a “broad desire” to engage with lenders, although the prevalence of activity and type of credit they are pursuing differs when comparing established and emerging markets.

The study reported a relatively large divide in how Gen Z approaches credit in established versus emerging credit markets. While in most established markets more than half of Gen Z are already credit active, the percentages drop precipitously for emerging markets.

“Lending dynamics are complex, as are the demands and needs of consumers across the globe,” said Jason Laky, executive vice president and head of financial services with TransUnion. “While Gen Z are much more credit active in markets such as the U.S. and Canada, we believe the demand is still there for similarly aged consumers in emerging markets. The difference oftentimes is that credit is simply not as readily available in emerging markets, but as consumers build their data identities, it’s clear that many of them will have the opportunity to secure the credit they need and deserve.”

The study noted Gen Z has a strong appetite for credit despite many of these consumers growing up in difficult economic conditions. In markets such as the U.S. and Canada, Gen Z saw their parents and other family members suffer through bouts of unemployment and challenging economic conditions, especially in the 2008-2011 timeframe, that had not been seen in generations.

However, many of the established countries featured in the study have seen their individual economies thrive in recent years. In the U.S., a stable economy, low unemployment and a favorable regulatory environment have been conducive for Gen Z as they seek and gain access to credit. Other factors such as technological advancements have also come into play.

“Gen Z is the first generation of digital natives, and they have come to expect a seamless consumer experience across all walks of life – including how they access, use and manage credit,” Laky said. “The desire for credit among this generation is significant across the board, and improving economic conditions will likely serve as a springboard for more credit, especially in emerging credit markets. It’s critical for lenders in both emerging and established economies to have the ability to make more informed decisions on prospective customers and earn their trust as well as their business.”

In the U.S., the study also compared the credit activity and performance of Millennials (consumers born between 1980 and 1994) and Gen Z consumers. To have a true “apples to apples” view, TransUnion observed Millennials who were between the ages of 18 and 24 years old in 2012 and Gen Z consumers who were 18 to 24 years old as of 2019, adjusted for risk and age differences. Across traditional credit products, preferences for these two groups were broadly similar; however, a combination of lender supply and consumer demand has caused some differences between generations. The lower rate of unemployment during Gen Z’s young adulthood has resulted in more Gen Z adults joining the workforce rather than enrolling in school. As a result, more Millennials (44%) had a student loan than Gen Z (37%).

The study reported more than half of credit-active Gen Z consumers are prime and above (VantageScore 661+), compared to 39% of credit-active Millennials who were prime and above at the same age. Even with a less risky credit-active population, Gen Z consumers have benefited from favorable underwriting standards toward non-prime borrowers (VantageScore 660 and below) in both the auto and credit card industries.

“The oldest set of Gen Z consumers came of age during an elongated economic expansion and relaxed underwriting environment, which allowed for a comparatively easier entrance into the credit market than their Millennial counterparts,” said Matt Komos, vice president of U.S. research and consulting for TransUnion. “Gen Z has been able to access credit cards and auto loans with greater ease, particularly because lenders have been extending their buy-box into non-prime–which has been beneficial to these Gen Z consumers as they enter the credit market.”

The report can be accessed at

Meanwhile, Ellie Mae said the refinance share among millennials dropped for the second straight month in December as interest rates rose. According to the latest Ellie Mae Millennial Tracker, 27% of all loans closed by millennials in December were refinances, compared to 31% in November. The 4 percent decline represents the largest month-over-month drop in refinance share during 2019.

At the time of the report gathering, interest rates on 30-year notes increased to 3.95%, up slightly from November. Prior to November, interest rates had fallen 10 months in a row.

(As of last week, the Mortgage Bankers Association reported the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) fell to 3.71 percent from 3.81 percent, with rates likely to fall lower in coming weeks.)

Ellie Mae reported from November to December, refinance share decreased 5 percentage points for conventional loans, which represented 71% of all loans closed during the month by millennials. Following the larger trend for all loan types, interest rates on conventional loans increased from 3.97% to 3.99%. Despite the December drop, the refinance share is up 17% year-over-year.

The report said it took a day longer to close refinances than in November. Comparatively, time-to-close held steady at 43 days for all loan types and 42 days for purchase loans. The average FICO score for all millennial borrowers rose from 721 to 728.

“If we take a step back and look at the last year, overall the market is still favorable for homeowners looking to refinance and millennials considering purchasing their first home,” said Joe Tyrrell, chief operating officer with Ellie Mae. “Whether millennials are refinancing more or increasing their purchase activity, the reality is that this demographic plays a central role in shaping the market.”