Despite economic headwinds, based on VantageScore’s monthly analysis of consumer credit data, consumers continue to demonstrate healthy credit habits though in some categories there appears to be some early signs of distress.
Average Credit Scores Stable
April 2022 data indicates that overall, consumers are doing well with respect to credit more than two years since the start of the pandemic. Average credit scores, as measured by VantageScore 4.0, have been fairly stable for the last several months and are at 697, up by 13 points compared to January 2020. Underpinning this trend is the fact that consumers have been able to avoid delinquencies and keep balances relatively low for a sustainable period.
But that trend may begin to change.
Delinquencies Low Overall Except Younger Borrowers Deteriorating
Delinquencies remain below pre-pandemic levels but are continuing to trend higher. While it is normal to expect that delinquencies revert to more ‘normal’ levels as many of the pandemic-period assistance programs come to an end, the April data highlights that certain consumer segments may be deteriorating faster in their credit performance. One example is younger consumers. Early-stage delinquencies are up about 61% year over year for Gen Z’s borrowers compared to 37% for the overall population.
Will Lenders Regret Widening the Credit Box?
Younger consumers are also building up credit balances at a faster rate with balances up 30% year-over-year, compared to a 10% increase for the broader population. Similarly, lower income consumers are getting more personal loans, growing balances at a higher rate compared to the broader population.
Given the unexpectedly benign credit environment observed during the pandemic, many lenders have more recently re-opened their underwriting following an earlier tightening, benefiting younger consumers and lower income consumers who tend to have lower credit scores. As economic headwinds strengthen, these consumers may see heightened levels of stress. As always, lenders should pay particular attention to segments that may be particularly sensitive to changing conditions.
