Millennials are among the biggest borrowers in the country. According to a report by CASHe, an online digital lending company for working professionals, EMI financing and medical expenses are the top reasons their millennial clients borrow. CASHe is among the many lending platforms that have cropped up in recent years to meet the rising demand for easy credit.

But that doesn’t mean millennials are not conscious about how much debt they are taking and how it can affect their lives. According to a recent study by TransUnion CIBIL, a credit information company, the number of “self-monitoring" millennials, which refers to those who regularly check their CIBIL score and report, grew by 58% compared to 14% growth among non-millennials. “Credit reports and scores have widely come to be used in India in the last decade or so. This coincides with the period when the first of millennials were probably accessing credit and hence this led to early consciousness," said Manu Sehgal, business development leader, emerging markets, Equifax, a credit rating agency.

Why it matters

Your credit score is instrumental in deciding how creditworthy you are or how easy it is for you to get a loan. Credit bureaus have different scales for assigning credit scores. For instance, CIBIL scores are calculated based on credit reports based on credit history. It can range from 300 to 900, and any score above 700 is generally considered good. The CIBIL report revealed that self-monitoring millennials have an average CIBIL score of 740, higher than the non-millennial average of 734.

A good credit score can make your financial life a lot smoother. “The benefits of maintaining a healthy credit score include eligibility for loans and credit cards, lower rates of interest on loans as the estimated risk of non-payment is lower for the lender, better credit card limits and faster loan approvals," said Manish Banerjea, chief operating officer (COO), Bank of Baroda Financial Solutions Ltd. He added that a healthy credit score can also help while seeking employment or visiting countries that have detailed visa processing requirements, including financial profiling.

The generational shift

Millennials differ significantly in habits and lifestyle from the earlier generations. Their money life is no exception. “Almost 70% of our millennial customers are credit conscious and aware of their credit scores. The shift from the ‘save first’ philosophy of the ‘baby boomers’ to a ‘consume first and pay over time’ mindset in millennials has occurred because the latter group is accessing credit for both their aspirational and living needs," said Anuj Kacker, COO and co-founder, MoneyTap, a lending app.

Kacker added that millennials are more open to borrowing flexible amounts to fund exotic holidays or weddings or buy luxury items. As a result, they actively seek information to manage their creditworthiness.

However, borrowing to fund lifestyle expenses can end up doing more harm than good. While you get what you want and it can boost your credit score if you repay the loan on time, it can get you into the habit of spending beyond your means.

Improving your score

According to the CIBIL report, millennials don’t just self-monitor but also actively work towards improving their scores. Within six months of checking their score, 51% of millennials with a score below 700 have improved their CIBIL score by an average of 65 points.

To improve your score, start by working towards resolving any disputed transactions that show up in your credit report but do not belong to you. “Credit bureaus can help raise such disputes with financial institutions. The consumer should also pay up any delinquent loan EMIs or credit card payments and continue to make timely payments over a period of time," said Sehgal. Also, steer clear of using the maximum limit on your credit card. “Don’t shop for credit by applying for multiple loans or cards within a short period of time, maintain a healthy mix of various loans and aim to build a long period of good credit history," Sehgal added.

Millennials, by and large, are avid borrowers and spenders, and maintaining a healthy credit score can help them keep the credit line open. But it’s important to be careful when taking loans, because it can easily become a slippery slope.