As consumers have continued to improve their payment habits, lenders have started to extend more credit to consumers with poor credit.
In a review of 2013 consumer credit trends, Experian analysts highlighted the low delinquency rates across all loan products, which has encouraged lenders to open up to subprime borrowers.
“The reason you see the willingness there is because of the overall improvement in the payment behavior,” said Alan Ikemura, senior product manager at Experian Decision Analytics.
Take the delinquency rates on credit cards, which reflect a lot of day-to-day transactions: 0.56% of outstanding credit card balances were 60 to 89 days past due in the fourth quarter of 2013, down from 0.65% at the same time in 2012 and 0.77% in 2011. (This data comes from Experian-Oliver Wyman Market Intelligence Reports and Experian’s IntelliView tool.)
With the exception of the deep subprime credit category (which Experian defines as a VantageScore between 300 and 499), credit utilization rates went down in all credit tiers from the fourth quarter 2012 to 2013. Payment history and debt use have the most impact on credit scores, and these improvements have encouraged lenders to do business with higher-risk customers.
It’s a similar story among mortgage and auto loan products.
“Lenders have learned their lesson to not get out of hand with it, and on the flip side, consumers know ‘Hey I can’t go crazy spending here,'” Ikemura said.
In reviewing the credit data from 2013, Ikemura and Linda Haran, senior director of solutions marketing at Experian, expressed optimism for 2014.
“Consumer confidence is up,” Haran said. “Discretionary spending continues to trend up, but not in an exaggerated way, signaling that the economy is staring to expand nicely, but in a sustainable way.”
Ikemura said any economic downturn or negative shift in unemployment may push lenders back in a conservative direction, but for the moment, the fact that consumers with great credit are well-served and people in general are doing a good job of meeting their debt obligations, lending will continue to open up.
If you’re looking to get a loan for any purpose in the near future, it’s always a good idea to check your credit before you apply. Even though lenders are opening up their standards, the better credit you have when you apply, the better access you’ll have to lower interest rates. Furthermore, by checking your credit reports, you may spot errors that are needlessly hurting your credit; resolving them could possibly raise your scores and get you a better deal on your loans. And it can be helpful to keep an eye on your credit scores as you build credit, or work to maintain it — just so you can spot problems if your score drops unexpectedly (or congratulate yourself on your good efforts as you see the numbers rise). There are free tools, like Credit.com’s Credit Report Card, which allow you to monitor your scores regularly.
More on Credit Reports and Credit Scores:
- The Credit.com Credit Score Learning Center
- What’s a Good Credit Score?
- How to Get Your Free Annual Credit Report
- How Do I Dispute an Error on My Credit Report?
- What’s a Bad Credit Score?
- How Credit Impacts Your Day-to-Day Life