Americans are falling behind on credit and loan payments, pushing many toward the lowest possible level of credit.
Compared to last year, 1.2 million more Americans are now considered “subprime borrowers” — or those with credit scores between 300 and 600 — according to a Money analysis of the latest data released by credit scoring firm VantageScore .
Overall, more than 47 million Americans fall into VantageScore’s subprime borrower category as of February 2024, our analysis shows.
Developed by the “big three” credit bureaus Equifax, Experian and TransUnion, a VantageScore is essentially a branded credit score. Scores range from 300 to 850 and are divided into four categories: subprime (300-600), near-prime (601-660), prime (661-780), and super prime (above 780).
According to VantageScore, an increase in delinquencies on all types of loans – including auto loans, credit cards, mortgages and personal loans – and across all credit score levels is contributing to plummeting scores for some people.
When people have a credit score of 600 or lower, it becomes extremely difficult to participate in the U.S. financial system and modern day life as a whole.
For example, many lenders turn down subprime borrowers or charge them exorbitant annual percentage rates. In addition to loans, internet and phone plans, security deposits and even rent payments can increase costs due to a low credit score. Employers are also increasingly considering credit scores in their hiring decisions.
Credit score trends show ‘a tale of two consumers’
According to VantageScore, the average credit score for all Americans is 701 and remains unchanged from last year. However, while the average VantageScore remains stable, Americans’ credit scores are becoming increasingly polarized.
About one-third of Americans have excellent scores, ranging from 661 to 780, making it the largest credit score category and major lender demographic.
But VantageScore notes that this group is shrinking, with more and more people ascending into the “superprime” category – with near-perfect credit scores – or falling into the subprime category.
“The tale of two consumers is becoming increasingly pronounced,” Susan Fahy, chief digital officer at VantageScore, said in the data report.
Fahy suggested that the current high interest rate environment – designed by the Federal Reserve to fight inflation – may be driving this trend. Americans with near-perfect credit are still able to spend and borrow as much as they need. Meanwhile, “subprime mortgage consumers are finding it increasingly difficult to stay current on credit payments,” she added.
A separate report released last month by rival credit scoring firm FICO broadly supports these findings. FICO found that, for the first time in more than a decade, the average FICO score fell last year, to 717.
Persistent inflation and high interest rates are likely to blame for people falling behind on debt payments, FICO said.
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