Millennials are unwittingly ruining their credit score and costing themselves thousands by making multiple loan applications, according to industry-leading broker, 1800Approved.

1800Approved Director Rodney Michail says Australia has an 'outdated' credit system. Lenders obliged to 'mark' an applicant's credit file each time they apply for a loan, regardless of whether they proceed with the loan or not.

Mr Michail says he has seen a number of millennials - those born between 1980 and 2000 - who think they have been savvy by comparing lenders, but have inadvertently reduced their credit score with multiple applications.

He says unlike Australia, most advanced economies do not mark credit files until the loan is accepted, and applicants are then judged on their ability to meet repayments.

"There needs to be better education for young people around how our credit system works and how they can avoid ruining their credit rating by making simple mistakes like this," he said.

Anecdotal evidence suggests that a large proportion of Australians do not seem to understand their debt. Hardly surprising, as any form of financial education is quite limited in the Australian School system.

"For example, I recently had one young client who had applied for a loan online with four banks in one day and by the time he met with us, his credit score had suffered significantly.

"His lower credit score, as a result of his online activity, meant he was deemed 'high risk' and therefore he was potentially looking at an interest rate around 4 per cent higher than an applicant with a better score.

"We managed to help him get a better deal, but the best outcome would have been avoiding the reduction in his credit rating in the first place."

Mr Michail says people can still do their research without affecting their credit rating.

"A licensed broker, like 1800Approved, is able to place a 'soft' footprint on the applicant's file and check borrowing capacity with multiple lenders without impacting the client's credit file from the outset," he said.

"The popularity of online shopping, and the relative ease of obtaining credit online has led to problems with the aspirational younger generation. Many of these people want to do the right thing, and may have a good credit rating if they avoid making multiple applications.

"It doesn't look like our credit system will be reformed in the near future so education is the answer if we want the next generation to approach credit applications in a responsible manner."

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